UPDATE 3-German minister's bid to kickstart EU reform gets cool welcome

* German finance minister attempts to break reform impasse

* Banking union reform designed to make sector stable

* Government spokesman says no agreement in coalition (Recasts, adds detail)

By Michael Nienaber and Hans Seidenstuecker

BERLIN/FRANKFURT, Nov 6 (Reuters) - A bid by Germany's finance minister to kick-start talks about a European bank reform were reined in on Wednesday by the government, whose spokesman said it had yet to get the backing of coalition partners in Berlin.

Olaf Scholz, a Social Democrat, had outlined changes for the euro zone to complete its stalled banking union reforms, offering a key concession from Germany -- conditional backing for a pan-European deposit protection scheme.

But a government spokesman said it had yet to be discussed with ruling partners. The Social Democrats are in a fragile coalition with Angela Merkel's conservative Christian Democrats, whose seal of approval is needed for Germany to change tack.

Scholz's offer was designed to break an impasse on a three-pronged reform signed off by European Union leaders in 2012 to shore up the region's banks and prevent a repeat of the debt crisis.

The first two pillars, making the European Central Bank supervisor and setting up an agency and fund to close ailing banks, are in place. But the third critical element, a single deposit guarantee scheme, has been blocked by Germany.

"We cannot afford a deadlock any longer," Scholz told an audience in Frankfurt, Germany's financial capital. "It's time for a breakthrough."

But Scholz's attempt to restart the talks after years of impasse received a tepid welcome.

Speaking to journalists, government spokesman Steffen Seibert said the matter had yet to even be discussed by the government.

Seibert described the proposal as a "contribution to the discussion" and declined to say that the proposals were government policy.

Speaking at a conference in Frankfurt, the European Central Bank's supervisory chief, Andrea Enria, told the audience he did not expect such a scheme to shield savers to be in place within his term of office, which ends in 2023.

Outlining his plan, Scholz had said that in the event of a bank failure, a three-step mechanism would apply. First, money from the national deposit guarantee scheme would be used.

If those funds are exhausted, a new European deposit insurance fund would provide limited additional liquidity through loans. Beyond that, the home country of the failed bank would have to step in.

Scholz's suggestion may be hard to accept for conservatives in the coalition government in Berlin, which has been losing ground to eurosceptic party Alternative for Germany.

One senior euro zone official said he was "cautiously optimistic, adding: "For the first time in years, countries are moving their red lines."

EU rules now guarantee deposits of up to 100,000 euros, a provision meant to strengthen confidence in banks after years of crisis that saw several bailouts.

But national schemes to insure depositors are considered inadequate to cope with a major banking crisis. Euro zone policymakers believe that an EU backstop, funded by all EU banks, would be the best guarantee.

Some large German banks like Deutsche Bank and Commerzbank welcomed Scholz's proposal.

"The timing of the initiative is wisely chosen," said Martin Zielke, the chief executive officer of Commerzbank. (Additional reporting by Jan Strupczewski in Brussels and Francesco Canepa in Frankfurt; writing by John O'Donnell and Jan Strupczewski; Editing by Larry King and Catherine Evans)