New Delhi, July 25 -- A mechanism similar to the banking sector's Danish Compromise could reduce differences in regulatory capital treatment between banks and insurers holding stakes in financial institutions (FIs), Fitch Ratings said.

The mechanism is currently under consideration by European authorities as part of wider efforts to examine whether banks and insurance companies face a level playing field when participating in financial institutions.

According to Fitch, more favourable capital treatment could encourage insurers seeking to strengthen their retail distribution networks to consider acquiring banks. However, such acquisitions could negatively affect an insurer's creditworthiness if they lead to lower available capital and a ...