The European Commission has launched a targeted consultation on revising the Fundamental Review of the Trading Book framework, known as FRTB, to strengthen how banks handle market risks. This move, announced on November 6, 2025, aims to align EU rules with global standards while protecting the competitiveness of European banks, with feedback due by January 6, 2026.
What Is the FRTB Framework?
Banks across Europe face strict rules on how much capital they must hold to cover potential losses from trading activities. The FRTB is a key part of the Basel III reforms, designed to fix weaknesses exposed by past financial crises.
This framework updates how banks calculate risks in their trading books, which include assets like stocks, bonds, and derivatives. It pushes for better risk measurement to prevent big losses during market turmoil.
Regulators want to make sure banks do not underestimate dangers in volatile markets. The changes focus on more accurate models for risk assessment.
Many experts see FRTB as a step toward safer banking, but it also brings higher costs for compliance.
Reasons Behind the Latest Delay
The EU pushed back full FRTB rollout from January 1, 2025, to January 1, 2027. This gives banks more time to prepare amid global regulatory differences.
Other major economies, like the US and UK, have also delayed or tweaked their versions. EU officials worry that stricter rules could put local banks at a disadvantage in global trading.
Economic pressures, including inflation and geopolitical tensions, add to the challenges. Banks argue that rushing changes could hurt lending and growth.
This delay follows a pattern of adjustments since the Basel Committee first set the standards in 2019.
A recent report highlighted that without alignment, EU banks might face higher capital needs than competitors abroad.
The consultation seeks input on balancing safety with fair competition.
Key Elements of the Consultation
The Commission is looking at two main ways to ease the transition. First, they propose tweaks to match deviations in other countries, ensuring EU banks stay competitive.
Second, a temporary multiplier could reduce the impact on capital requirements for three years until 2029.
Stakeholders, including banks and industry groups, can comment on these ideas.
Here are the primary goals of the consultation:
- Align EU rules with global practices to avoid unfair burdens.
- Reduce short-term costs for banks during the shift.
- Strengthen overall financial stability without stifling innovation.
This process builds on earlier talks, like one in March 2025 that gathered broad input on market risk approaches.
Impact on European Banks
Banks in the EU could see mixed effects from these revisions. On one hand, the delay offers breathing room to upgrade systems and models.
On the other, higher capital rules might limit profits from trading desks. Large players like Deutsche Bank and BNP Paribas have already voiced concerns about costs.
Smaller banks might struggle more with compliance, potentially leading to mergers or reduced market activity.
A study estimates that full FRTB could raise capital needs by 20 to 30 percent for some institutions.
Industry leaders say the changes are needed but must be phased in carefully to support economic recovery.
| Timeline Milestone | Date | Description |
|---|---|---|
| Original Basel Deadline | January 1, 2025 | Initial global target for FRTB rollout. |
| EU First Delay Announcement | June 2025 | Postponement to allow more preparation. |
| Latest Consultation Launch | November 6, 2025 | Targeted feedback on revisions. |
| Consultation Deadline | January 6, 2026 | End of input period. |
| New Implementation Date | January 1, 2027 | Full rules take effect in EU. |
| Transition End | 2029 | Temporary relief measures expire. |
This table shows the evolving schedule, reflecting ongoing adjustments.
The rules could also affect how banks manage risks in areas like cryptocurrencies and sustainable investments, tying into broader EU goals.
Global Context and Challenges Ahead
Worldwide, regulators are grappling with similar issues. The US Federal Reserve has proposed its own Basel III tweaks, while the Bank of England plans consultations in 2026.
Divergences could lead to regulatory arbitrage, where banks shift operations to lighter-rule areas.
Recent events, such as market volatility from US elections and trade tensions, underline the need for robust frameworks.
Experts predict that full global alignment might not happen until 2030, prolonging uncertainty.
EU leaders stress that strong rules prevent crises, drawing lessons from the 2008 meltdown and recent bank failures.
What do you think about these changes? Share your views in the comments and spread the word to keep the conversation going.
