Banks in the European Union could evade part of the Basel III capital requirements under draft legislation implementing the globally agreed standards, it was reported today.

The Financial Times said the draft could allow EU banks to count more of the capital in their insurance subsidiaries than the global rules call for.

Banks including Société Générale, BNP Paribas and LLoyds Banking Group, all of which have insurance arms, would benefit disproportionately from the exception, the newspaper added.

It would also allow banks to continue issuing hybrid capital for longer than expected, the FT said.

If the two exceptions stand "it would be a violation of the global agreement," an unidentified regulator involved in the process was quoted as saying.

Basel III is a set of minimum requirements but the EU executive commission wants them to become a ceiling inside the region to ensure a common approach across the 27 member states.

It was endorsed by world leaders last November and will phase in tougher bank capital and liquidity requirements over six years from 2013.

EU financial services chief Michel Barnier will publish a draft EU law in July based on the global agreement.

Mr Barnier said last week he would not compromise on the accord's "level of ambition" and that the new law would be an opportunity to make progress towards a single rulebook for the region's banks.

Reuters