The Bank of England plans to relax a key capital requirement for UK banks, aiming to support lending and financial market stability during periods of economic stress.
The proposal targets the leverage ratio, a rule that limits how much banks can borrow by requiring them to hold a minimum level of capital against total assets.
The Financial Policy Committee said the measures form part of a broader adjustment to banking regulations introduced after the 2008 financial crisis.
Under the plan, part of the leverage requirement would become “releasable” during a crisis, giving banks greater flexibility to deploy capital when conditions deteriorate significantly.
The Bank of England also intends to remove an additional leverage buffer that primarily affects larger domestic-focused lenders, including Lloyds Banking Group, NatWest, Nationwide, and Santander UK.
In a downturn, an extra capital buffer applied to those banks would also be cut to zero, specifically to keep lending flowing through the broader economy.
A formal consultation on that change is expected to begin later this year, giving industry participants a chance to respond before any final decisions are made.
The central bank said the overall package would lower the leverage ratio by approximately 0.2 percentage points of UK banks’ total assets.
At the same time, the Bank of England said it would raise a separate leverage requirement for more globally active UK lenders with larger investment banking operations, including HSBC, Barclays, and Standard Chartered.
Governor Andrew Bailey described the changes as “targeted” and said they were designed to address “the anomaly” of UK domestic-focused banks facing higher leverage ratio requirements than many overseas rivals and some UK peers.
The move follows a relaxation of US leverage requirements in November, a development that intensified competitive pressures on British lenders operating in international markets.
When originally introduced, the leverage ratio was intended as a backstop to risk-weighted capital requirements, but the Bank of England acknowledged it has become binding for three out of seven major British banks.
The Bank of England said the package would keep British lenders aligned with international standards while making it easier for them to support lending and core markets during a crisis.
However, not all members of the Financial Policy Committee backed the proposal without reservations, with some expressing concern about unintended consequences.
The FPC said “some FPC members were concerned that the proposal might lead to an unwanted increase in market-based leverage, with implications for the resilience of core UK markets.”
Bailey acknowledged that “we have got some more work to do” on the risks associated with high leverage in both debt and equity markets.
In a separate warning, the central bank said “recent rapid advances in frontier AI capabilities have increased financial stability risks related to cyber and operational resilience.”
The Bank of England also flagged additional pressures, including high government debt issuance, heavy hedge fund borrowing in gilt markets, and mounting risks within the private credit sector.
