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The European Commission is set to delay the impact of a global banking reform as it seeks to stop EU lenders from being put at a disadvantage by US moves to cut capital requirements for big banks.
According to two officials familiar with the plans, Brussels will after Easter adopt legislation to neutralise the short-term impact of the Fundamental Review of the Trading Book (FRTB) — a key component of the Basel III framework governing market risk.
The FRTB overhaul introduces a more risk-sensitive framework for trading activities, replacing older models with stricter rules on how banks measure potential losses and allocate capital buffers.
The European Banking Authority estimates that implementing FRTB would raise market risk capital requirements by about 30 per cent on average, with increases of up to roughly 80 per cent for some banks.
Brussels’ plan is to introduce a temporary multiplier that negates the increase for banks’ trading activities for up to three years, the officials said.
Regulators have been grappling with diverging timelines between jurisdictions.
The UK earlier this year postponed its own implementation of FRTB’s internal models framework until 2028, citing the need for greater international alignment.
In the US, the Federal Reserve announced plans to implement the so-called “Basel Endgame” in a way that would “decrease the requirements by a small amount” for the biggest American banks, including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley.
This in turn raised concerns in Brussels that European banks could face disproportionately higher capital charges if the EU presses ahead with full implementation of FRTB.
The delay comes ahead of a broader review of EU banking regulation, expected later this year, following demands from lenders and politicians to reduce regulatory burdens and ensure EU banks can stay competitive.
But critics worry that it could undermine the international framework put in place following the 2008 financial crisis.
