PARIS, April 11 (Reuters) - The European Central Bank is

opposed to BNP Paribas using a favourable capital

treatment for its deal to buy French insurer AXA's

asset management business, a person with knowledge of the matter

said.

The ECB's view could have negative implications for

consolidation across Europe's financial industry, making certain

deals more expensive.

BNP shares fell on Friday and were last down 3%,

underperforming the wider European banking sector, which dropped

about 0.2%.

BNP Paribas and AXA declined to comment. The ECB did not

immediately respond to a request for comment.

The French bank had asked the ECB to use what is known as

the "Danish Compromise" that provides favourable capital

treatment in asset management takeovers carried out through

banks' insurance businesses.

This makes an asset management acquisition cheaper for the

buyer in terms of the hit to its regulatory capital.

The compromise lets banks risk-weight their insurance

investments instead of deducting them in full from their

capital.

BNP Paribas's AXA deal was agreed last year but is yet to be

finalised.

The ECB has said previously it would decide on the use of

the Danish Compromise on a case-by-case basis.

Last month, the ECB took a negative stance on Italian bank

Banco BPM benefiting from the same rule for its

acquisition of a local asset manager.

Banking executives are keen to see what stance the ECB

takes, with industry sources saying a positive opinion on the

use of the Danish Compromise would support further dealmaking.