* Owner says in talks about solution in case of failure
* State prepared to give extra capital reserves
* Helaba expects silent participation to be counted in test
* Pass mark five percent core tier 1 ratio likely - Helaba
(Adds comments from owners, Helaba board members)
By Arno Schuetze
FRANKFURT, March 24 (Reuters) - German public-sector bank Helaba wants a new round of stress tests for Europe's banks to be designed in a way that is favourable to German state-controlled lenders.
Helaba Chief Executive Hans-Dieter Brenner said it was counting on the European banking regulator to mould the rules of a fresh round of European stress tests to accommodate the capital structure of these banks.
A uniquely German form of non-voting capital, called silent participations, had been counted toward core capital during the simulation phase of the tests, Brenner said.
"That is why I expect that it will be considered and recognised", he said, adding in this case Helaba would easily pass the test.
But many industry experts expect the European Banking Authority (EBA) will not allow silent participations in their current form to be counted toward core capital in the tests.
The bank's owners said they were preparing for such a case, although regarded as unlikely.
"We are in talks, there would be solutions," the head of Helaba's 85-percent owner SGVHT, Gerhard Grandke, told Reuters on Thursday.
A quick fix would be to beef up a form of non-voting capital, known as silent participations, to take on loss-absorbing properties, a move that would allow Helaba to count it toward core tier 1 capital.
The European Banking Authority (EBA) aims to restore confidence in Europe's banks by designing a tougher test this year, after only seven banks failed the 2010 test, that will serve as a health check for 88 EU lenders.
In 2010 only one German bank, nationalised Hypo Real Estate , failed the stress test.
Under last year's test, Helaba showed its Tier 1 capital ratio would shrink to 7.3 percent under stress, just above the 6 percent threshold needed to pass, but worse than nine of the 14 German banks subjected to the test.
Supervisors will use a stricter 'core' Tier 1 benchmark this year which should mainly comprise the more robust shareholders' equity and retained earnings.
CORE CAPITAL
German banks may therefore not be able to include within core capital all silent participations.
These are a kind of debt-equity hybrid that have been criticised for not being able to absorb losses while a bank is still in business.
Helaba holds more capital reserves in form of silent participations than any landesbank peers.
Of Helaba's core capital of 5.75 billion euros 3 billion is made up of silent participations, of which 1.9 billion are owned by the state of Hesse and 400 million euros by SGVHT, which is a regional organisation of savings banks.
The owners plan to change the design of these silent participations by the end of this year.
"If silent participations meet 14 criteria, they qualify and our silent participations already meet 11 of these criteria," Grandke said.
Separately, the German state of Hesse -- which owns 10 percent of Helaba -- said it could make a capital contribution if Helaba fails the tests.
"If needed, Helaba can rely on a 480 million euro reserve from the state of Hesse," a finance ministry spokesman said.
The EBA has said it hopes to announce an agreed definition of capital for the tests and a pass mark soon.
"It is likely that EBA will ask for a five percent core tier 1 ratio under stress," Helaba board member Detlef Hosemann told Reuters.
(Editing by Jane Merriman)