Austria and Luxembourg are the only countries that do not share with other EU members the identities of EU residents with cross-border bank accounts. Instead Austria taxes interest income at source and returns the money to other EU states.

Austria has defended the system as more efficient than exchanging personal information, but the question is increasingly whether the model is sustainable in the harsh light cast from Cyprus's ill-fated model of attracting foreign funds.

"There could very well be consequences here from the Cyprus affair," Willibald Cernko, head of the Austrian Banking Association and chief executive at UniCredit unit Bank Austria, said in a weekend radio interview.

In its latest report on Austria, the Paris-based Financial Action Task Force (FATF), an intergovernmental body that fights tax evasion and money laundering, cited potential dangers.

Historical ties with central and eastern Europe could make Austria a transit point for drugs and other trafficking, it said, "as well as a destination for criminal money, attracted by its reputation for political stability, tradition of banking secrecy, and attractive tax regime".

Austrian banks for decades used banking secrecy as a marketing argument, and some still do.

"The strictness of its banking secrecy is part of Austria's attractiveness internationally - to change the provisions of section 38 of the Austrian Banking Act requires the equivalent of a constitutional amendment," Schoellerbank says on its website.

DONALD DUCK ACCOUNTS

To be sure, Austrian banks have tightened rules on identifying customers, and even Austrians have capital gains tax withheld automatically from their accounts. The anonymous passbook is long a thing of the past.

"No one can open mafia accounts as 'Donald Duck' without identification. The know-your-customer principle is iron clad," Die Presse's Josef Urschitz wrote in a column questioning whether clinging to bank secrecy was doing more harm than good.

"The banking system is clean, at least cleaner than its reputation in the rest of the EU. So why in heaven's name risk being put on the same level as tax havens?"

Bank Austria's Cernko stopped short of saying banks no longer needed banking secrecy, but said the challenge was grooming public opinion for an inevitable debate on whether the law was advantageous or not.

Austria has already struck tax deals with neighbors Switzerland and Liechtenstein that preserve tax secrecy and is about to embark on tax talks with the United States, which is campaigning to track down the offshore wealth of its citizens.

Should Vienna strike a deal with Washington along the lines of one Switzerland signed last month to make banks disclose information about U.S. account holders, while withholding similar information from its fellow EU members, it will be a red flag for Brussels.

European tax commissioner Algirdas Semeta had in January criticized Austrian banking secrecy policies and said Vienna would break the law if it adopted such selective disclosures.

"A country like Austria cannot exchange bank account information with the United States and refuse it to its partners in Europe," he told Austrian paper Der Standard.

The Austrian National Bank said it was unaware how much of the 156 billion euros ($203 billion) in domestic savings deposits at end-2012 were held by non-Austrian EU residents.

(Editing by Stephen Powell)

By Michael Shields