FRTB To Be Delayed To 2026; Should Be Minor Spread Positive In Time

Press reporting FRTB legislation to be pushed back to 2026 due to US legislators moving slowly with the EU set to follow suit to maintain a level playing field. FTRB implementation should be a net credit positive, in our view, but the total capital impact only looks like a few percentage points, so this is a delay to a small positive, in short.

• Financial News is reporting that US lawmakers are set to push back implementation of FRTB (fundamental review of the trading book) rules, a new measure of market risk. This was originally meant to kick in in 2025 and is now being reported as being pushed to Jan-26.
• FRTB stands likely to increase capital requirements across a range of trading book exposures which should either bring banks’ trading risk appetites lower or increase their capital needs in those businesses (or both), either way, we see this as a minor credit positive. Sadly, this positive is now being delayed but should still come in as part of “Basel Endgame” proposals, in our view.
• The Bank Policy Institute stated in Sep-23 that FRTB could increase market risk capital requirements by over 60% for large banks (and even higher for US banks). BBG calculates that, for European banks, market risk RWAs are only around 4% of total RWAs (credit risk consumes the most capital). So, this implies total capital requirements only moving up 2-3%.