ECB staff back controversial ‘opt in’ for bank trading rules

The European Central Bank has lent its support to a controversial proposal that would allow banks to choose whether to implement new trading capital rules next year or wait until 2027.

In its contribution to a consultation by the European Commission, the ECB said a twin track proposal “could help keep the momentum” on the implementation of the regulation, known as the Fundamental Review of the Trading Book.

The commission had sought input on options to avoid disadvantaging the region’s lenders, after the UK postponed the measures and the US failed to advance proposals for its implementation. FRTB is part of the final package of post-crisis global reforms agreed in Basel in 2017.

In Europe, opinion has been split between smaller banks that stand to reap cost savings from a standardised model used under the new regime, and larger ones that will face higher capital charges once the rules come into force. A proposal by the European Banking Federation to let banks choose whether to implement the rules next year or postpone them was initially met with resistance in Frankfurt and Brussels.

The ECB’s comments suggests that line has now softened, as the watchdog considers how to simplify banking rules so that Europe’s lenders aren’t left behind by a global wave of deregulation.

In the document, ECB staff noted that the twin track model would require “additional specifications” to address implementation issues.

Some of the flexibilities proposed by the Commission’s consultation “would in our view need to be accompanied by appropriate supervisory safeguards if introduced,” the ECB also said.

A straight delay, such as the one announced by the UK, isn’t necessary and would only prolong uncertainty over how the rules would eventually be applied, according to the document.