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The EU will delay the application of key provisions of the post-crisis banking reforms by a year, arguing that expected US delays in implementing Basel would penalize lenders in Europe.
The move, championed by France, raises further doubts about the enforcement of the so-called Basel III package, an ambitious overhaul of banking regulations agreed in the wake of the 2008 financial crisis that the EU planned to implement by 2025 to complete.
After signs that US regulators would shift their timeline for the so-called ‘Basel Endgame’, the European Commission decided to postpone the ‘fundamental review of the trading book’ (FRTB) until January 2026.
“In essence, it’s about a level playing field. We have decided, given all the evidence and delays elsewhere, to delay market risk rules,” Mairead McGuinness, the EU’s financial services commissioner, told the FT.
The specific reforms, unveiled in 2016 as a measure to stop regime abuses, would require investment banks to hold more capital in their wholesale portfolios, with the aim of limiting market risk when they buy and sell client securities.
McGuinness confirmed that the EU would delay the specific reforms by a year, adding: “I hope that the US and other jurisdictions will adopt the standards faithfully and quickly.”
Major euro zone lenders have long sought a delay in the rules, arguing that introducing stricter capital requirements would put them at a disadvantage compared to US and British banks.
“If you cannot offer business customers the same products and conditions from day one, you lose competitiveness in the trading sector,” said Gonzalo Gasos of the European Banking Federation.
French President Emmanuel Macron recently called on the EU to “review the application of Basel,” saying the EU “cannot be the only economic space in the world to apply this law.”
A Commission spokesperson said the remainder of the remaining Basel implementation package would apply from 2025 as planned.
The US plans to implement its version of the Basel Endgame rules by July 2025, but US regulators’ initial proposals were met with aggressive lobbying efforts by banks. Regulators received hundreds of responses to the original proposal.
Federal Reserve Chairman Jay Powell, who is part of the U.S. effort behind Basel Endgame, said earlier this year that “broad and material changes” would likely be made to the final rule.
He has not ruled out a reproposal, rather than a simpler reformulation, of the rule. The Fed is currently working with the Office of the Comptroller of the Monet and the Federal Deposit Insurance Corporation to respond to comments from the financial industry.
Federal agencies rarely choose to re-proposal, which slows the rulemaking process. But issuing final measures that differ markedly from the original proposals could expose agencies to criticism for not allowing the public a comment period to weigh in on the updated rules.
McGuiness also expressed deep frustration at the EU’s inability to make progress in integrating its financial markets, complaining that the commission’s latest proposal to harmonize the EU’s 27 different insolvency laws was “significantly watered down” by the parliament and the member states.
Speaking in Frankfurt on Tuesday, she said failure to do more – such as proposing to revive securitization markets by packaging bank loans and selling them to investors – would have “huge costs” as Europe would deprive of funding. are needed to tackle key economic challenges, including the green transition and digitalisation.
McGuiness, whose term as commissioner ends in October, urged governments to stop thinking about “what they could lose at national level” and think more about “what they could gain” from Europe as an internal market. “Preservation is not growth,” she said, adding that “nibbling at the edge of the problem will not work.”
Additional reporting by Claire Jones in Washington and Martin Arnold in Frankfurt