Basel III Framework Faces Revo
New trading rules in the US and Europe are facing delays and amendments as regulators relax requirements amid industry pushback and competitiveness concerns.
The final phase of the Basel III framework is being reworked after significant industry and regulatory opposition. Both sides of the Atlantic are now investigating the Fundamental Review of the Trading Book (FRTB).
The European Commission said it was considering measures to neutralize the effects of FRTB. It cites concerns about the international “level playing field” amid varying implementation in other major jurisdictions. At the beginning of the year, the Commission had already delayed implementation until January 2027.
On March 19, US regulators – the Federal Reserve, the FDIC and the OCC – put forward a revised Basel III “endgame” proposal. The proposal aims to simplify capital requirements and soften earlier measures, reinforcing concerns that the framework is no longer being applied consistently across major markets.
Michelle Bowman, Federal Reserve vice chair for supervision, said at the time that the new proposal would “streamline the risk-based capital framework” and “better align requirements with risk.”
competitive problems
The FRTB aims to change the way banks measure risk in their trading books by introducing stricter rules for calculating market risk, tougher tests for which trading desks can continue to use internal models, and higher capital charges for complex or less liquid positions.
But nearly 20 years after its inception, the framework is facing renewed resistance following the 2008 global financial crisis. Banks and regulators claim this could significantly erode industry margins, especially for banks with large and complex business operations.
Earlier this year, in a consultation response to the European Commission, the Association for Financial Markets in Europe said that “some components of the FRTB are creating challenges due to significant operational complexity and overly conservative capital requirements, which are not aligned with the underlying economic risk.”
Experts also worry that uneven implementation across jurisdictions could create competition problems. After all, EU banks often face tighter regulation.
“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 vital to ensure EU banks can continue to lend and invest effectively,” says Haider Jumbahoy, partner and global co-head of the Financial Institutions Industry Group at White & Case.
