European banking industry gets a three-year "regulatory breathing space": EU plans to push exemption laws to tackle competition from US peers.

Notice that the European Union's enforcement agencies have drafted a fourth extension plan, aimed at protecting European banks from the full impact of new capital rules, ensuring that major lending institutions such as Credit Agricole and Deutsche Bank will not be at a disadvantage when facing American competitors. The European Commission stated in a press release on Wednesday that it will seek opinions on a draft authorization bill. This bill will allow lending institutions to "offset" the negative impact of the Fundamental Review of the Trading Book (FRTB) on capital for a period of three years. It was reported last month in the media that the EU is considering 13 different amendments, including the introduction of a "bank multiplier" to achieve a three-year exemption. These provisions are in line with the proposal put forward by the European Commission in November last year, aiming to ensure a "level playing field" between European banks and their American counterparts. Despite the substantial content of the reforms revealed by the US in March this year, the specific timeline for implementation is still uncertain. According to the press release, the authorization bill is expected to be officially passed on May 19th. In the EU, rules regarding trading books have been postponed three times, with the most recent delay now extended to 2027. The UK regulatory authorities have also postponed the plan several times, with banks using complex internal models now able to adopt the new mechanism starting from January 2028. The trading book rules are part of a broader agreement known as "Basel 3.1" in Europe and "Basel III Final Rules" in the US. The EU has already implemented other parts of the plan in 2025, while the UK is expected to follow suit in 2027. Christian Sewing, the CEO of Deutsche Bank, suggested in January that the rules for the Fundamental Review of the Trading Book may undergo more substantial revisions given the European policymakers' "renewed scrutiny" of regulation. Following the US proposal in March, the industry immediately urged the EU to reconsider. In the draft authorization bill, the European Commission proposed the possibility of more substantial reforms in the future. The European Commission stated: "Considering the temporary nature of the targeted measures in this Authorization Act and the permanent distortions to the level playing field that implementation in other jurisdictions may cause, the Commission will reassess the necessary follow-up steps in its 2026 report on the competitiveness of the EU banking sector." The FRTB rules will ultimately require many banks to allocate more capital for their trading activities, but this delay decision may not satisfy all lending institutions. A survey released earlier this year found that 43% of companies engaged in trading activities hope that the new rules will take effect as originally planned in early 2027.