The Bank of England (BoE) has proposed changing market risk capital requirements, easing current pressure on banks to hold capital against their trading positions.
Under the changes, proposed by the BoE’s Prudential Regulation Authority (PRA), UK banks could calculate market risk using internal models rather than the standardised models set laid out in the fundamental review of the trading book (FRTB) rules within the internationally agreed standards Basel III.
FRTB was proposed as a worldwide stopgap against the kind of risks taken during the 2008 financial crisis, by mandating strict rules on the capital banks must hold against any market risk exposure.
Core Basel III regulations are due to be enforced in the UK from 1 January 2027, with the FRTB provisions coming into force from 1 January 2028.
Both the US and EU have signalled they will soften their approach to internal modelling under Basel III. In March, the US Federal Reserve announced sweeping changes to the requirements for banks, including support for internal risk models.
Executives at JP Morgan Chase have argued that even under the new proposals, the firm will have to hold an additional $20 billion in capital.
The EU has also eased the adoption of FRTB measures, having announced “temporary adjustments” on 4 June that will delay the implementation of the market risk capital framework to 2030.
Last week, the Financial Times reported the EU is looking at easing Basel III rules to give banks capital relief when lending to unrated companies.