Report: European Commission to Seek Banks’ Comments on Capital Requirements

The European Commission reportedly wants to seek comments from banks on its plan to implement the Fundamental Review of the Trading Book (FRTB), which determines how banks estimate potential losses and, therefore, capital requirements.

The review would further delay the implementation of new rules that supervise their trading activities, Seeking Alpha reported Friday (Feb. 28).

The plan to start new trading regulations has already been delayed or thrown into doubt by the failure of the U.S. to finalize its own version of the Basel III Endgame package of capital rules; by the inauguration of the Trump administration, which campaigned on deregulation; and demands from France and other countries to delay the rules so that their banks are not at a disadvantage to U.S. banks, according to the report.

It was reported in May that banks in the U.S. had pushed back against tougher capital requirements planned by the government, arguing that the rules would hinder lending and ramp up costs.

The rules came in response to a series of banking failures in 2023, but proponents of the rules said they wanted banks to see new capital requirements as a help, not a hindrance.

Even when regulators scaled back capital requirements for banks, reducing the holdings that must be on the books to buffer against economic and other shocks, the ripple effect could be that the banks tighten access to traditional lending products, PYMNTS reported in September.

For banks, higher capital requirements reduce the money that can be put to work in the markets, so capital itself becomes more expensive because liquidity is diminished.

Federal register documentation of one proposal put forth by U.S. regulators in 2023 contended that “although a slight reduction in bank lending could result from the increase in capital requirements, the economic cost of this reduction would be more than offset by the expected economic benefits associated with the increased resiliency of the financial system.”

When three of the top financial services regulators told the House Financial Services Committee on Nov. 20 that any new rulemaking would not commence until 2025, after the inauguration of the Trump administration, the modification of risk-based capital requirements in the Basel III Endgame proposal was among those to be put off.