Eight US Dealers to Avoid FRTB Application – Risk.net

Eight U.S. Banks are poised to avoid full implementation of the Fundamental Review of the Trading Book (FRTB), a key component of the Basel III endgame, according to a proposal by the Federal Reserve. The revised trading-activity thresholds will narrow the scope of the market risk framework, potentially easing the regulatory burden on these institutions.

Under current regulations, U.S. Lenders with trading assets and liabilities of at least $1 billion, or 10% or more of total assets, are required to calculate market risk-weighted assets (RWAs) using Basel 2. The proposed changes would exempt eight dealers currently capitalizing market risk from this requirement, as reported by Risk.net on March 25, 2026.

The shift comes as many banks reassess the cost-benefit analysis of implementing the Internal Models Approach (IMA) under FRTB. The IMA allows banks to use regulator-approved, internally built risk models, while the Standardised Approach (SA) offers a formulaic method. According to industry experts, a growing number of institutions are opting for the simpler SA, finding the expense of maintaining and validating complex internal models increasingly tough to justify.

“Many trading operations have become ‘remarkably plain vanilla,’ diminishing the value of sophisticated modeling,” a source familiar with the matter told Memesita.com. The move towards the SA isn’t solely about cost-cutting, but also reflects banks’ existing efforts to streamline operations due to regulations like the Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Tests (DFAST).

The FRTB, designed to standardize and improve risk-based capital requirements for trading activities following the 2007-2009 financial crisis, has faced increasing scrutiny as implementation nears. While intended to enhance risk management, the complexity and cost of full implementation are prompting some banks to reconsider their approach.

The Federal Reserve’s proposal signals a potential retreat from the ambitious goals of FRTB, raising questions about the extent to which the framework will ultimately reshape risk management practices in the U.S. Banking sector. The implications of this shift for financial stability and regulatory oversight remain to be seen.