Calls for easing EU capital rules for banks to grow after Trump victory

The The European Union (EU) and the United Kingdom will be under pressure to delay or scale back a planned increase in capital requirements for banks as Donald Trump’s victory is expected to ease the burden on US competition.

“There will be voices in the EU and most likely in the U.K. calling for a pause” or changes to the rules after Trump takes the White House, said Sebastien de Brouwer, deputy chief executive of Europe’s largest banking lobby, European Banking Federation.

The rules, known as Basel Endgame or Basel 3.1, will impose stricter capital requirements to protect against future crises. Countries around the world were supposed to implement them at the same time, but different jurisdictions have since set their own timelines, prompting banks to complain about potential downsides.

Some Basel rules could be delayed even further after Trump’s victory “given the uncertainty about implementation in the United States,” said Joachim Wuermeling, a former Bundesbank board member responsible for banking supervision. But “I see no need” for the EU to restart negotiations on the entire framework, he added.

Trump’s sweeping victory earlier this month led to an almost immediate rise in the share prices of U.S. banks including Goldman Sachs Group and Citigroup, as investors bet lenders would have an easier time of it under the new administration.

“President-elect Donald Trump’s victory could upend the Basel III endgame proposal and set the financial sector on a path to deregulation,” Bloomberg Intelligence analysts Arnold Kakuda and Nick Beckwith said in a note. “Major U.S. banks have $134 billion in excess CET1 capital that could be available for distribution to shareholders in 2025.”

During Joe Biden’s presidency, Wall Street repeatedly ran into conflicts with regulators over the new rules. The original plans put forward by regulators called for a 19 percent increase in capital requirements for the largest banks, but that proposal was cut to 9 percent in the latest draft proposal.

If the US version of the Basel Rules were weakened under Trump, banks in other jurisdictions, including the UK and Europe, would likely warn of a competitive disadvantage and also demand changes to their framework, particularly in globally competitive areas such as markets where the “” Fundamental Review of the Trading Book” or FRTB introduces significant capital changes.

“Given the importance of the US to international capital markets, how and how quickly the US implements Basel 3.1 matters to UK and EU banks,” said Simon Hills, director of regulatory policy at British lobby group UK Finance. If the US decides to slow FRTB changes, “regulators in the EU and UK will need to rethink their approach,” Hills said.

Bankers’ calls to ease rules if the US does so have been met with resistance from some senior EU regulators, who warn of the possible consequences.

“The Basel Framework must remain the cornerstone of internationally agreed rules,” Claudia Buch, head of banking supervision at the European Central Bank, said at a recent conference. “Weakening the Basel rules would be counterproductive – it would weaken the guard rails, especially for globally active banks, and increase regulatory uncertainty.”

Still, the political trend in Europe has already turned against regulation, with the bloc’s three largest economies recently calling on the European Commission to halt new initiatives and relax some existing rules to protect the industry’s competitiveness.

Some European regulators said privately that the outcome of the U.S. election had created a difficult environment for the planned implementation of the Basel rules in Europe. A senior regulator at one of Britain’s biggest banks said it was risky for the country to introduce the rules in the internationally competitive trading space while there was so much uncertainty about the outcome in the United States.

The U.K. has already delayed implementation of the rules twice and would be reluctant to agree to a further extension, a person familiar with the deliberations said.

A European Commission official said the EU had “many times” reaffirmed its commitment to fully implementing the Basel reforms within the announced time frame. A representative for Britain’s PRA regulator declined to comment.

The EU is due to roll out the bulk of its banking capital package in January 2025, but has postponed measures affecting banks’ trading operations until January 2026, hoping to align with the US.

The UK has delayed its entire package until 2026. The timetable for the USA remains unclear.

A lot will depend on what Trump’s administration does. “It’s still early and there are much broader problems,” said Nicolas Veron, a senior fellow at the think tank Bruegel, adding that it was “hard to see” how Trump would live up to his campaign promises on everything from low inflation up to high inflation, would redeem tariffs and low interest rates as well as easing banking supervision. BLOOMBERG