EU Banks Get a Three-Year FRTB Capital Offset

EU banks will apply FRTB market-risk rules from 1 January 2027 with a multiplier that can zero the extra capital charge. Delegated Regulation (EU) 2026/1221 is already in force. It overlays 13 temporary patches on the Fundamental Review of the Trading Book and runs through 31 December 2029.

The European Commission adopted the act on 4 June 2026 after two one-year delays used up the postponement power in the Capital Requirements Regulation. US agencies put out a new Basel proposal in March 2026 with no start date, so the EU will run the new trading-book maths with a capital offset rather than wait for Washington.

The Trading Book Rules Go Live Without the Capital Hit

FRTB is the Basel Committee’s rewrite of how banks hold capital against trading losses. It replaces older value-at-risk models with expected shortfall, a stricter standardised method, and a harder test for internal models. The rest of the EU’s Basel III banking package, CRR3 and CRD6, has applied since 1 January 2025. Market-risk capital is the piece that did not.

On 4 June the Commission used Article 461a of the CRR to attach a targeted multiplier and operational relief measures to that leftover piece. The approaches start on 1 January 2027. For banks that would otherwise see market-risk capital rise, a multiplier of no more than 1 can pull the number back to the pre-FRTB charge for three years.

Europe’s banks must be able to compete on equal terms with their international peers. These targeted and time-limited measures help preserve a level playing field in global financial markets while maintaining our commitment to the Basel standards.

Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investments Union, 4 June 2026 statement

Calling the act another three-year delay misses the legal switch. The FRTB methods apply. The extra capital they were written to raise can be scaled away, which is the point of the overlay and the irony sitting inside it.

Brussels Exhausted Its Two-Year Delay Power

Article 461a gave the Commission two tools if other large countries lagged: postpone FRTB by up to two years, or rewrite pieces of it for up to three. Both one-year delays have been used. A third postponement was not available, so the June act spends the amendment power instead.

THE PATH FROM DELAY TO OVERLAY

1. 1 January 2025: CRR3 starts for most Basel III rules. FRTB capital stays on the old CRR2 methods.
2. 2024: Delegated Regulation (EU) 2024/2795 pushes FRTB capital to 1 January 2026.
3. 12 June 2025: Delegated Regulation (EU) 2025/1496, published on 19 September 2025, pushes it again, to 1 January 2027.
4. 6 November 2025: A targeted consultation on patches and a multiplier opens; it closes on 6 January 2026.
5. 21 April 2026: A four-week consultation on the draft act runs to 19 May 2026 and, the Parliament’s ECON briefing notes, does not force material changes.
6. 4 June 2026: The Commission adopts C(2026)3647. Parliament and Council get three months of scrutiny, extendable by three more.
7. 11 September 2026: The act is published in the Official Journal and enters into force the next day, 12 September 2026, with application from 1 January 2027.

The Commission’s own write-up of the June decision is blunt about the motive. Trading books can be booked in London, New York or a Union branch with little friction, so a solo EU go-live would raise the capital cost of the same desk relative to peers still on older rules. Unilateral FRTB, the Commission said, could also push the business out of EU banks altogether.

The Multiplier That Can Cancel Extra FRTB Capital

Two separate factors now sit on the capital number, and they are easy to mix up. One is industry-wide. Until 31 December 2029, institutions apply a 0.9 multiplier to the sensitivities-based method under Article 495s, a 10% haircut on that standardised block. The other is optional and bank-specific. Institutions that still face a rise after the 13 patches may apply an overall multiplier so that FRTB capital, after those patches and after the output floor, matches the pre-FRTB figure.

The Commission’s technical Q&A says banks will calibrate that second factor so it scales down their FRTB capital requirements to the old level. The legal cap in Article 461a is a multiplier at or above 0 and below 1; the act lets an adversely affected bank use a factor no higher than 1. The policy target is capital neutrality for those names, not a gift for books that already cheapen under FRTB.

The output floor, live since 1 January 2025, is built into that calibration. It stops internal models from driving capital too far below the standardised measure. Multiplier banks must set the factor so the final market-risk own-funds number equals the pre-FRTB calculation even when the floor is binding. ECB staff, answering the winter consultation, preferred a static bank-specific factor over an industry-wide one, and said they did not expect many banks to need it once the patches are applied.

Multiplier banks also stay on the old trading-book boundary, the CRR2 line, for the full three years. They must keep reporting and disclosing market-risk figures under the CRR as it stood on 8 July 2024. The new FRTB reports still run. The old calculator stays on for anyone who uses the overall multiplier.

Five Banks Face Most of the Trading-Book Shock

Market risk is a thin slice of EU bank capital and a fat problem for a handful of wholesale names. ECB staff, using Q2 2025 supervisory data in their January 2026 note to the Commission, found that a full FRTB start would be largely neutral for most supervised banks and sharp for a few, mostly global systemically important banks.

ECB STAFF FRTB IMPACT, Q2 2025 DATA

Five significant institutions would see their CET1 ratio fall by more than 50 basis points on that full start, and five would see it rise by more than 50 basis points, as market-risk RWAs move. The 86% average rise in market-risk RWAs at the five hardest-hit names is the concentrated shock the overlay is built to cap. Even there, market risk is still a small share of the balance sheet, which is why a near-doubling of that slice adds only 3.5% to total RWAs.

That split is why a bank-specific backstop fits the file better than a flat industry discount. Most books would not have paid a large FRTB premium. The names that would have paid it are the ones that compete, desk by desk, with US and UK wholesale banks.

What the Thirteen Temporary Patches Change

The Parliament’s ECON scrutiny paper counts 13 temporary adjustments in the act, including the overall multiplier. They copy, the Commission said, steps other large countries have taken or signalled they will take. The load-bearing ones sit on the internal-model tests that made FRTB expensive, and on standardised add-ons that bite when a desk cannot model.

THE RELIEF THAT RUNS WITH THE MULTIPLIER

• PLAT and eligibility: The profit-and-loss attribution test and the risk-factor eligibility test under the internal-model approach are eased, which cuts both capital and the day-to-day run cost of those desks.
• Non-modellable factors: The conditions for treating a risk factor as modellable, and the capital on factors that fail, are loosened for the three years.
• IMA frequency: Internal-model calculations run on a lighter timetable than the full daily FRTB design.
• Funds and sovereigns: Collective investment undertaking positions get more flexible capital treatment under both internal models and the standardised approach, and internal default-risk models can apply a zero factor to the probability of default on issuers that already draw a 0% risk weight under the standardised method.
• Hedged equity and carbon: Standardised default-risk and residual-risk add-ons, hedged equity, EU ETS carbon instruments, and the alternative correlation trading portfolio all get transitional treatment.
• Standardised phase-in: The alternative and simplified standardised approaches phase in, including the 0.9 factor on the sensitivities-based method through 31 December 2029.
• Small books: Banks with little trading activity get extra room to use the simplified standardised approach for non-trading foreign-exchange and commodity positions.

None of that rewrites FRTB for good. The patches expire with the multiplier. Article 461a also told the European Banking Authority to deliver a third-country implementation report by 10 July 2026, after which the Commission may send the Parliament and Council a legislative proposal if it wants a lasting fix instead of another overlay.

The US Proposal Leaves the Start Date Blank

The competitive case for the overlay is still the US calendar. In March 2026 the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation published a new package to finish Basel III. The Commission’s June note said the US consultation ran to mid-June 2026, that the proposal comes with amendments, and that the timeline for going live remains unclear and will likely be set later in the year.

The UK is closer. It will apply its Basel 3.1 package from 1 January 2027, the same morning as EU FRTB, but it will delay internal models for market risk by at least one more year, with firms keeping current model approvals in the meantime. EU desks that want internal-model permission in 2027 will be running a different test from their London books.

FRTB START DATES IN THE THREE BIG MARKETS

The US package also parts company with Basel’s usual model logic. Parliament’s ECON briefing notes that the proposal would let the standardised charge cap internal-model capital, rather than floor it, so a desk could use the lower of the two after supervisory sign-off. That is the opposite of the EU output floor, and it is one of the “significant differences” Article 461a was written to watch.

Two Rulebooks on One Trading Floor

From 1 January 2027 an EU trading bank will calculate FRTB capital, apply the 13 patches, test whether it is adversely affected, and, if it is, scale the result back to the CRR2 number. It will also keep the old reports alive if it uses that overall multiplier. The European Banking Authority spent 3 August 2026 trying to stop that dual run from splitting the Union in two.

Its no-action letter on the book boundary tells competent authorities not to prioritise enforcement of the new trading-book and banking-book boundary, or of internal risk transfers between those books, for the overlay period. Without that letter, multiplier banks would have run the CRR2 boundary for the factor and the CRR3 boundary for everything else, while other banks ran only the new line. The EBA said that split would have been costly inside each group and uneven across the Union.

The Commission’s Q&A still warns that market losses arrive without a phase-in. Pillar 1 can be scaled. Risk management cannot. Banks using the overlay will have a capital number that looks like 2024 and a risk engine that looks like 2027, and they will have to explain both to supervisors every reporting date through 31 December 2029, when the patches fall away unless the co-legislators write a new law.