The Bank of England outlined plans to ease leverage and buffer rules for large UK banks, aligning more closely with international standards while keeping focus on resilience and lending in stress.
The Bank of England set out plans on Tuesday to relax parts of its capital framework for banks, including softening the impact of the leverage ratio and making capital buffers easier to use in periods of stress. The proposals would bring British rules closer to international standards after a U.S. easing in November increased competitive pressure on UK lenders. The Financial Policy Committee said it would remove one buffer from the leverage ratio and make a greater share of other buffers releasable, estimating a 0.2 percentage point reduction in leverage requirements for large British banks from current levels of a little over 3%. The central bank said the leverage ratio, originally designed as a backstop to risk-weighted capital rules, has become binding for three of Britain’s seven major banks and left them facing higher requirements than international peers. The BoE also said it wants to improve the usability of capital buffers so they can be released more easily without automatically triggering restrictions on shareholder payouts, a step intended to reduce incentives for banks to pull back lending in a downturn. That part of the reform would affect large, domestically focused banks such as Lloyds, NatWest and Santander UK, while rules for international banks are set by Basel. A public consultation is due later this year, and banks would be given several years to rebuild buffers. The announcement advances a debate that had centred on whether leverage rules were discouraging banks from holding gilts. Barclays had said exempting some gilt holdings could add up to £150 billion of demand and save the government £2.5 billion a year in debt interest, while Lloyds estimated a roughly £30 billion boost and at least £1 billion in annual savings. Former regulators had warned that broad gilt exemptions could weaken resilience and deepen links between banks and the state. The FPC said the changes would make the framework "more proportionate and more effective by being better targeted" and added that it sees a case for a single releasable buffer in stress, though that would require international support.