Europe Delays Stricter Banking Rules to Keep ‘Level Playing Field’ With US Rivals

Waiting on a Party of One (Country)

The new rules are part of the Basel III international banking reforms that were introduced in 2017 and designed in response to the 2008 financial crisis. Basel III is meant to create global standards for the way banks measure risk and enhance their ability to withstand shocks (a.k.a. prevent another systemic implosion worthy of an Oscar-winning Matt Damon-narrated documentary). Specifically, the Fundamental Review of the Trading Book will tighten how banks measure and hold reserves against their capital markets activities, zeroing in on investment banking.

Investment banking, of course, is on an earnings tear on both sides of the Atlantic, with trading desks cashing in on volatile equities even as US tariff policy has curbed M&A activity. JPMorgan Chase and Morgan Stanley reported record revenue from their equity traders in the first quarter, while investment banking fees rose 12% at JPMorgan and 8% at Morgan Stanley. Deutsche Bank, Germany’s largest lender, reported its highest quarterly pre-tax profit in 14 years in the first quarter, with its trading unit netting record revenues. Income at France’s largest bank, BNP Paribas, slipped in its latest quarter, but the equities desk was a bright spot with a record result. Were the EU to implement the new rules now, however, the region’s investment banks could look across the Atlantic and see a US administration less inclined to follow suit:

• Last year, the Federal Reserve softened its proposed Basel III rules after intense lobbying from the banking industry. That was even before the second Trump administration, which promised a deregulation-focused agenda, came into power. Last month, the Financial Timesreported that US officials plan to roll back bank capital requirements in the next few months.
• In January, as Trump entered office, the UK put its own new capital rules on hold until 2027, with the Bank of England stating that it wanted to see what the US does first, in the interest of its own “competitiveness and growth considerations.” The European Commission made a similar case Thursday, noting that “concerns regarding the international level playing field and the impact on EU banks remain high.”

Waiting Game: Banks are still waiting for a potential recovery in dealmaking, which would further boost investment fees, but that will require clarity from the Trump administration on trade policy. On May 29, Goldman Sachs President John Waldron told a conference that he saw a “quite good” outlook for investment banking, adding that the “pipeline is strong all over the world.” He did, however, flag volatility as an obstacle to deals. Earlier this week, Bank of America CEO Brian Brian Moynihan said at a conference that his bank expects investment banking fees to fall to $1.2 billion in the second quarter from $1.6 billion a year earlier. He said that’s “not where we want to be” but also flagged that there are “great prospects.”