Europe moves to slow down new banking rules amid global competition

By Puja Sharma

The European Commission is preparing to delay the impact of the Fundamental Review of the Trading Book (FRTB), in a move aimed at protecting European lenders from a potential competitive disadvantage as global regulatory divergence widens.

According to reports, Brussels is expected to adopt legislation after Easter that would soften the immediate capital impact of FRTB by introducing a temporary multiplier. This mechanism would effectively neutralise the increase in capital requirements tied to trading activities for a period of up to three years. The decision reflects growing concern within European policymaking circles that strict adherence to Basel III reforms could put EU banks at a disadvantage compared to peers in jurisdictions such as the United States, where regulators are considering easing certain capital rules.

FRTB, a cornerstone of the Basel III framework, is designed to overhaul how banks calculate market risk, making capital requirements more sensitive to actual trading exposures. However, its implementation comes with significant cost implications. The European Banking Authority estimates that FRTB could increase market risk capital requirements by around 30% on average, with some institutions facing hikes of up to 80%.

This has raised concerns among European banks already navigating a challenging environment marked by economic uncertainty, rising compliance costs, and intensifying global competition. A delay, even if temporary, could provide institutions with critical time to recalibrate their trading strategies, upgrade risk systems, and absorb the financial impact more gradually.

Rumours that the European Commission may delay implementation of the Fundamental Review of the Trading Book indicate a possible concern that EU banks should not inadvertently be placed at a competitive disadvantage to international peers. At a time when global competition for capital is intense, and customer choice is not limited by jurisdictional boundaries, maintaining a level playing field is critical to ensuring EU banks can continue to lend and invest effectively.

While the FRTB framework is designed to strengthen resilience through more risk-sensitive capital requirements, postponing it could give credit institutions additional breathing space to prepare themselves and mitigate market disruption.

Current speculation is unlikely to materially impact EU bank M&A consolidation activity. The past 12 months have seen deal activity accelerate across the European banking sector, amid rising regulatory and economic challenges, with more than 50 transactions in 2025 alone. EU lenders continue to feel the pressure to build scale and scope, improve operational efficiency and bolster shareholder returns.” said Hyder Jumabhoy, Partner at White & Case LLP.

The broader implication of the delay points to a growing tension between regulatory ambition and market reality. While global frameworks like Basel III aim to ensure financial stability, uneven implementation risks fragmenting the competitive landscape. For European banks, the challenge lies in balancing regulatory compliance with the need to remain agile and competitive in a rapidly evolving financial ecosystem.

As discussions progress, the proposed delay signals a pragmatic shift—one that prioritises stability and competitiveness, even as regulators continue to pursue long-term resilience in the banking sector.