Bank industry chief warns Cypriot banks must reopen in days

A solution must be found to reopen Cypriot banks within days before it is "too late", one of Europe's top bankers warned on Wednesday, saying he feared the island's problems risked knocking confidence across the region.

"Everything needs to be solved very quickly. This is a matter of a very few days before it gets too late," Christian Clausen, president of lobby group the European Banking Federation told Reuters in an interview.

"Speed is extremely important," said Clausen, who is also chief executive of Nordea Group, the Nordic region's biggest lender.

Clausen's comments were echoed by Hung Tran, deputy managing director of the Institute of International Finance, a global bank lobby group.

"The country is small and the numbers involved are small but the symbolism is significant," Tran told Reuters. "The protection for small depositors has been violated.

"Deposits have never been haircut in five years of financial crisis," said Tran, who helped negotiate an earlier restructuring of Greek debt that handed losses to investors. "The risk is that there will be a deposit flight out of Cyprus."

The remarks underscore a growing sense of alarm in the banking community as Cyprus tries to avoid a default and bank crash having rejected the terms of a euro zone bailout.

Banks in Cyprus are set to remain closed on Thursday and Friday as the country races to find an alternative to imposing a levy on bank deposits in return for financial aid.

With Monday a public holiday, the move effectively closes lenders until Tuesday, March 26.

Describing the closure of bank branches as "a very bad thing to do" and the imposition of a levy on depositors as "unfortunate", Clausen said he feared that events in Cyprus would snuff out a gradual return of confidence.

"We are all very concerned that if it continues it may spread to some of the closer countries who do have problems with government debt," he said. "The real issue is how much this will impact confidence throughout Europe."

(Reporting By John O'Donnell, editing by Mike Peacock)