The European Central Bank published a staff contribution to the European Commission’s targeted consultation on the application of the market risk prudential framework, focusing on options for implementing the Fundamental Review of the Trading Book (FRTB) under the Capital Requirements Regulation (CRR). ECB staff argues that postponing the start date for full application of the new market risk framework to 1 January 2027, or substantially amending the framework, is not necessary from a prudential perspective and would prolong uncertainty and impose additional costs on banks that have prepared for the planned 2026 entry into force. ECB staff notes that a combination approach could maintain implementation momentum, for example by making the FRTB standardised approach (FRTB-SA) a formal supervisory requirement while delaying the internal models approach (FRTB-IMA) with an additional one-year extension, subject to additional specifications to preserve a level playing field, including consistent trading book and banking book boundary requirements. For transitional capital calibration under the alternative standardised approach, it prefers an ascending scalar over three years rather than a flat 0.9 multiplier, citing supervisory reporting that suggests the capital impact is manageable for most significant institutions, although some banks could see a Common Equity Tier 1 impact of over 25 bps if all banks applied an unamended FRTB-SA. The contribution also calls for supervisory safeguards if temporary flexibility is introduced for the profit and loss attribution test and for phasing-in non-modellable risk factor requirements, raises strong concerns about permitting quarterly look-through for material collective investment undertaking exposures, and supports temporary simplification of supervisory processes during the implementation phase to enable a focus on key risks. The contribution is framed around the Commission’s potential use of the CRR Article 461a empowerment to amend FRTB implementation, including the ability to postpone the entry into force of market risk own funds requirements for up to two years.
European Central Bank 2025-05-07
European Central Bank staff advises the European Commission that further delaying the Fundamental Review of the Trading Book is not prudentially necessary
The European Central Bank (ECB) has contributed to the European Commission's consultation on the market risk prudential framework, opposing delays to the Fundamental Review of the Trading Book (FRTB) under the Capital Requirements Regulation (CRR) beyond 2026. ECB staff suggest making the FRTB standardised approach a supervisory requirement while delaying the internal models approach by one year. They recommend an ascending scalar for transitional capital calibration and call for supervisory safeguards if temporary flexibility is introduced.