By Annika Breidthardt and Andreas Rinke
BERLIN (Reuters) - Germany will propose Sabine Lautenschlaeger, a vice president at the German Bundesbank, to take the board seat at the European Central Bank that is being vacated by Joerg Asmussen, according to two sources familiar with the matter.
Asmussen announced on Sunday that he would be returning to Berlin after just two years on the ECB's six-member executive board, to become state secretary in the labor ministry.
His replacement will lead to some reshuffling of tasks on the board and comes at a time when the ECB is reaching the limits of its conventional monetary policy and may be forced to explore new ways to keep deflationary risks at bay.
Little is known about Lautenschlaeger's views on monetary policy, but she has a solid track record in banking supervision, having worked at German financial supervisor Bafin before joining the Bundesbank in 2011.
She has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and argued against treating government bonds as risk-free assets in bank books.
The prime candidate to become the Executive Board's representative at the new European banking watchdog, the Single Supervisory Mechanism, Lautenschlaeger is seen serving as its vice-chair. That would give her a strong role as the ECB can object the new body's proposed decisions.
Yves Mersch, Vitor Constancio and Peter Praet are also seen in the running for the job.
The most important and time-consuming part of Asmussen's job has been taking care of the central bank's international relations. Most likely candidates for that portfolio are Mersch and Benoit Coeure.
ECB President Mario Draghi will have the last word on who will do what on the board, which forms the nucleus of the policymaking Governing Council.
Before Lautenschlaeger, 49, joins the bank, she will need to go through the formal selection process. Once officially nominated by the German government - expected later on Tuesday - European Union finance ministers will consider all candidates for the post and make their choice.
The ECB will be asked for comment, as will the European Parliament, which will conduct a public hearing with the contender in its Economic and Monetary Affairs Committee before discussing it in a parliamentary plenary session.
The parliament has no power to veto an appointment.
Finally, the Council of the European Union, at the level of heads of government and heads of state, then formally appoints the candidate.
The fact that Lautenschlaeger is a woman will win her points with the EU parliament, which held back the appointment of Yves Mersch to the Executive Board last year on the grounds that not enough women had been considered for the post.
In the 15-year history of the ECB, only two women, Finland's Sirkka Hamalainen and Austria's Gertrude Tumpel-Gugerell, have served on the board.
Traditionally, the four largest euro zone countries - Germany, France, Italy and Spain - have had one seat each on the board, although Spain has been without a representative since mid-2012, when Jose Manuel Gonzalez-Paramo's term ended.
(Writing by Noah Barkin and Eva Taylor; Editing by Madeline Chambers and Catherine Evans)