European Commission to delay FRTB impact for EU banks

The European Commission is preparing to delay the impact of the Fundamental Review of the Trading Book (FRTB), in a move aimed at preventing European lenders from being placed at a competitive disadvantage relative to their US counterparts.

According to reports, Brussels is expected to adopt legislation after Easter that would temporarily neutralise the short-term capital impact of FRTB—a central component of the Basel III standards governing market risk. The proposal includes the introduction of a multiplier mechanism designed to offset increases in capital requirements tied to banks’ trading activities for up to three years.

The potential delay comes amid growing divergence in regulatory approaches across jurisdictions. While FRTB is intended to enhance the risk sensitivity of capital frameworks and improve financial system resilience, concerns have emerged that uneven implementation timelines could distort competition in global banking markets.

Estimates from the European Banking Authority suggest that full implementation of FRTB would increase market risk capital requirements by approximately 30% on average, with some institutions facing rises of up to 80%. Such increases could materially affect balance sheet allocation, trading activity, and overall profitability for EU banks.

Hyder Jumabhoy, Partner at White & Case LLP, said the move reflects broader concerns around maintaining competitive parity in a globalised financial system.

“Rumours that the European Commission may delay implementation of the Fundamental Review of the Trading Book indicates 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,” he said.

Jumabhoy added that while FRTB is designed to strengthen resilience through more risk-sensitive capital requirements, a postponement could offer institutions additional time to adapt. “Postponing it could give credit institutions additional breathing space to prepare themselves and mitigate market disruption,” he noted.

Despite the regulatory uncertainty, the delay is not expected to significantly alter consolidation trends within the European banking sector. Deal activity has accelerated over the past year, driven by pressures to achieve scale, improve efficiency, and enhance shareholder returns. More than 50 banking transactions were recorded across Europe in 2025, underscoring continued momentum in M&A despite tightening regulatory and economic conditions.

The Commission’s anticipated intervention highlights the balancing act facing regulators: strengthening financial stability while ensuring domestic institutions remain competitive in an increasingly fragmented global regulatory landscape.