The European Union is preparing to introduce a temporary multiplier that would effectively neutralise the capital impact of the Fundamental Review of the Trading Book on banks most exposed to the new global standard, according to EU sources and a Financial Times report published on Tuesday. The move reflects growing anxiety in Brussels that strict implementation of the Basel trading rules could put European lenders at a competitive disadvantage, particularly as the United States and the United Kingdom delay or soften their own approaches to the same reforms.
A THREE-YEAR REPRIEVE IN VIEW
Under the plan being considered, EU policymakers would introduce transitional arrangements that offset the increase in capital requirements stemming from the FRTB framework for as long as three years. The mechanism, described as a temporary multiplier, would allow banks whose trading books face particularly large capital increases under the new methodology to phase in the higher requirements gradually rather than absorbing them all at once when the rules take effect.
The broader Basel III framework had already designated January 2027 as the target date for FRTB implementation in the EU. However, the latest signals suggest that regulators are still debating whether to delay further or simply blunt the immediate effects through these transitional measures. A final decision is now expected after Easter 2026, extending a period of uncertainty that has hung over European bank trading desks for the better part of a decade.
COMPETITIVENESS ANXIETY DRIVES POLICY
The FRTB introduces a more risk-sensitive approach to calculating capital requirements for market risk, replacing the current framework with methodology that better captures potential losses under stressed conditions and accounts for the risk of less liquid trading positions. While the reforms are designed to make the global banking system safer, their impact falls unevenly: banks with large, complex trading operations — such as Deutsche Bank, BNP Paribas, and Barclays — face the most significant capital increases.
The competitive dimension is central to the EU's hesitation. The United Kingdom has already deferred certain aspects of FRTB implementation until 2028, giving London-based banks additional time to prepare. In the United States, Federal Reserve Vice Chair for Supervision Michelle Bowman previewed a Basel III proposal last week that takes a notably different approach to market risk, with adjustments that better recognise diversification across positions and extend the use of bank internal models where data are sufficiently robust — moves that could leave U.S. banks with comparatively lighter requirements.
GLOBAL COORDINATION FRAYS
The divergence among major jurisdictions represents one of the most significant fractures in the post-crisis regulatory framework. The Basel Committee on Banking Supervision, which sets international standards, noted at a recent meeting of the Group of Central Bank Governors and Heads of Supervision that roughly 75% of member jurisdictions have implemented or will soon implement the Basel III reforms. But the details of implementation vary enormously, and the FRTB has emerged as a particular flashpoint where national interests are overriding the goal of global consistency.
The GHOS meeting also endorsed targeted reviews of the Basel framework for banks' crypto asset exposures and the assessment methodology for global systemically important banks, with updates expected later this year. These reviews add additional layers of uncertainty for banks that are already struggling to plan capital allocation amid shifting regulatory goalposts.
WHAT THIS MEANS FOR BANKS
For European banks with significant trading operations, the temporary multiplier would provide near-term breathing room. Deutsche Bank, BNP Paribas, and Societe Generale, all of which have substantial market-making and derivatives businesses, stand to benefit most directly. The relief may also help preserve the EU's position as a centre for derivatives trading and fixed-income market-making at a time when some of that activity has been gradually shifting toward London and New York.
However, the delay adds to a pattern of regulatory deferrals that critics argue erodes the credibility of the Basel process. The original Basel III endgame reforms were agreed upon in 2017 and were meant to be fully implemented by 2023. Nearly a decade later, major jurisdictions are still negotiating the final details, and each round of concessions to industry concerns raises questions about whether the post-crisis framework will deliver the resilience it was designed to provide.
Banks and their trade associations have broadly welcomed the EU's more flexible stance, arguing that calibration should reflect the realities of European capital markets rather than applying a one-size-fits-all global template. But regulators who have spent years negotiating the Basel accords are watching with growing concern as the unified front that characterised the initial post-crisis response continues to fragment.