Home / Business and Economy / EBA Clarifies Capital Treatment for Bank Asset Managers
EBA Clarifies Capital Treatment for Bank Asset Managers
12 Jan
Summary
- EU banking rules now prevent capital benefits for asset managers via insurers.
- The EBA clarified the 'Danish Compromise' applicability to asset managers.
- A loophole allowing capital arbitrage has been officially closed.
The European Banking Authority (EBA) has issued a clarification regarding EU banking rules, specifically addressing the capital treatment of asset management firms acquired through insurance subsidiaries of banking groups. The EBA has stated that these arrangements are not eligible for the favorable capital treatment previously reserved for the insurance businesses themselves. This clarification effectively closes a potential loophole that regulators feared could lead to capital arbitrage.
The 'Danish Compromise,' a provision within the EU's Capital Requirements Regulation, allows banks owning insurers to apply risk-weighted capital treatment rather than full deduction for their insurance subsidiaries. Initially a temporary measure, it became permanent to facilitate the adoption of international banking rules. However, a lack of clarity on its application to asset managers bought via insurance arms led to mistaken expectations, such as by Italy's Banco BPM last year.
The EBA's review of such transactions highlighted concerns that these structures could be designed to exploit more favorable capital rules or avoid deductions. The authority affirmed that the Capital Requirements Regulation explicitly includes subsidiaries of subsidiaries, meaning a financial institution held through an insurance undertaking is considered a subsidiary of the parent institution, thus prohibiting the sought-after capital treatment.
