European Union banks with insurance divisions could sidestep certain requirements of the forthcoming Basel III capital requirements, the Financial Times reports.
The paper said the draft Basel III legislation, which has not yet officially been released, could allow EU banks to count more of the capital held in their insurance units towards the total than the global rules demand.
In the UK, Lloyds Banking Group could stand to benefit from this compromise. However, Royal Bank of Scotland needs to sell its insurance arm by 2013, before the Basel III rules kick in fully.
The new Basel III capital requirements will start to be phased in from 2013, with full implementation expected by January 2019.
Basel III limits the use of insurance assets to 10% of each bank’s total capital stock. However, sources told the FT that draft amendments to the EU’s capital requirements directive, which allow another method of calculating capital, could effectively undermine the 10% limit.
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