BNP Paribas CEO Signals Europe’s Shift Toward a ‘Neutral’ Stance on FRTB Amid Basel III Crosscurrents

The European Union’s regulatory path for banking reforms has reached a critical crossroads, with BNP Paribas CEO Jacques Pirotte recently signaling a potential pivot toward a more “neutral” approach to the Basel III Fundamental Review of the Trading Book (FRTB) framework. This shift, he argued, stems from the U.S. Federal Reserve’s delayed rollout of its own Basel III Endgame rules, which has created a window for European policymakers to reassess alignment priorities. The implications for banks like BNP Paribas—already bracing for a 90-basis-point hit to its CET1 ratio under current FRTB timelines—are profound, reshaping capital strategies and competitive dynamics across the continent.

The Regulatory Tightrope

Since 2023, the EU has delayed FRTB implementation to January 1, 2026, aiming to synchronize with global jurisdictions. Yet, with U.S. regulators still mired in political and technical debates over Basel III’s output floor and model restrictions, the EU now faces a dilemma: proceed with its original plan or delay further to avoid disadvantaging European banks.

BNP Paribas’ CFO, Lars Machenil, has been explicit about the stakes. During February’s earnings call, he outlined that implementing FRTB in 2026 would reduce the bank’s CET1 ratio by 90 basis points in 2025 alone, trimming its cushion from an estimated 12.2% in 2024 to 11.3% by year-end. While this still exceeds the 10.5% regulatory minimum, the narrowing margin underscores the capital strain banks face.

Why “Neutral” Now?

Pirotte’s call for a “neutral” stance reflects a broader industry push to align with U.S. timelines. The EU’s original 2026 deadline risked creating a “level playing field” imbalance, as U.S. banks could delay capital adjustments longer. For instance, U.S. regulators have yet to finalize Basel III’s output floor, which caps the use of risk models, while the UK’s Prudential Regulation Authority has delayed its Basel 3.1 reforms until 2026.

The European Commission’s consultation, open until April 2025, now weighs three options:
1. Proceed with FRTB in 2026 (status quo).
2. Postpone to 2027, mirroring potential U.S. delays.
3. Introduce temporary amendments to soften FRTB’s impact on capital charges for derivatives and sovereign exposures.

A delay to 2027 gains traction, with Deutsche Bank’s CFO noting a “decent likelihood” of such an outcome. For BNP Paribas, this would buy critical time to optimize portfolios and reduce risk-weighted assets (RWAs). The bank’s trading book RWAs could rise by €7.5 billion under 2026 implementation—a 2.1% increase over 2024 levels—due to FRTB’s stricter valuation rules.

The Capital Crunch and Competitive Risks

The EU’s regulatory calculus hinges on balancing global alignment with domestic competitiveness. If Europe proceeds with FRTB in 2026 while the U.S. delays, European banks could face higher capital charges for similar activities, squeezing profitability. For BNP Paribas, which derives 30% of its revenue from corporate and investment banking, this could erode its ability to compete with U.S. peers like JPMorgan.

Meanwhile, the Basel III reforms are projected to raise EU banks’ capital requirements by 6.4–8.4% by 2030, with an interim rise of 0.7–2.7% by 2025. These increases, driven by stricter internal model constraints and the output floor, will force banks to choose between raising capital, reducing risk-taking, or trimming dividends. BNP Paribas’ CET1 ratio trajectory—projected to fall to 11.3% in 2025—leaves little room for error.

Conclusion: Neutralizing the Crosscurrents

BNP Paribas’ leadership is right to anticipate a more “neutral” EU stance on FRTB. With the U.S. delaying its Basel III Endgame and the UK aligning with a 2026 timeline, the EU’s best path is to postpone FRTB to 2027 or adopt temporary amendments. This would:
- Mitigate competitive disparities: Avoid penalizing EU banks prematurely.
- Reduce capital strain: Allow BNP Paribas and peers to optimize portfolios without abrupt RWA hikes.
- Align with global norms: Maintain synchronization as Basel III’s final rules crystallize.

For investors, the stakes are clear. A 2027 delay could stabilize BNP Paribas’ CET1 ratio near 12%, preserving its ability to navigate regulatory headwinds. Conversely, proceeding with 2026 implementation risks a capital squeeze that could pressure its €3.8 billion dividend payout or spur equity issuance. With the EU’s decision pending, the “neutral” path is not just prudent—it’s necessary to avoid a regulatory misstep that could cost European banks billions in lost flexibility and competitiveness.

As the CEO’s words imply, the EU’s regulators are now walking a tightrope between global standards and domestic survival. For BNP Paribas, the difference between a 2026 or 2027 timeline could be the margin that keeps its capital ratios—and its investment thesis—in the green.