EBA Bars Banks From Using Insurance Units To Reduce Capital For Asset Managers

The European Banking Authority (EBA) has clarified that EU banking rules do not allow banks to receive capital relief for asset management firms held via insurance subsidiaries. This decision addresses a potential loophole that regulators said could enable capital arbitrage.

Under the EU’s Capital Requirements Regulation (CRR), the “Danish Compromise” allows banks owning insurers to hold capital on a risk-weighted basis for their insurance subsidiaries, rather than fully deducting the holdings. The measure, initially temporary after the 2008 financial crisis, is now permanent. The EBA reviewed cases where banks acquired asset managers through insurers, including Italy’s Banco BPM purchase of Anima Holding. Questions arose on whether such acquisitions could benefit from the Danish Compromise. The EBA said this is not allowed, noting that subsidiaries of subsidiaries are treated as part of the parent institution, preventing banks from using insurance units to reduce capital requirements. The move aims to prevent regulatory arbitrage.