EU banks may be allowed to count more of the capital in their insurance subsidiaries towards the new Basel III capital requirements than previously expected, according to the Financial Times.
Last year, the Basel Committee on Banking Supervision agreed to introduce a requirement for all banks to maintain core tier one capital equal to 7 per cent of their assets. It said insurance capital can only account for up to 10 per cent of each bank’s total capital stock.
But according to the FT, draft Basel III legislation, which has not yet been released, could allow EU banks to evade the 10 per cent cap.
It says this could “disproportionately” benefit EU banks with insurance arms, including Lloyds Banking Group, which owns a number of insurance divisions including Scottish Widows.
One source told the FT: “You could drive a horse and coach through that exception.”