HVB Group, Germany's second-largest bank, said on Wednesday it had given up plans to create a Bermuda-based risk management arm.

A source said the bank had dropped the plans because it was not prepared to inject the required capital into the business, according to Reuters news agency.

"The project has been cancelled. HVB was not ready to put up the necessary funding," Reuters quoted a "source close to the situation".

HVB said in June its Bermuda subsidiary Grand Central Re (GCR) would begin in November to restructure, manage and purchase portfolios and risks from companies, the public sector and institutional investors.

As part of the plan, GCR was set to receive $500 million in capital from its shareholders and the source is attributed as saying that the Munich-based bank had not been willing to inject the remaining $300 million into the business.

The move was part of its strategy of focusing business on core activities in Germany, Austria and central and eastern Europe.

The source said HVB's management board had already decided on the matter last week and that the unit's 100 staff would now be integrated into HVB.

Former GCR head and HVB management board member Stephan Bub would leave the bank shortly, the source said in the report.