Bank of England moves to recalibrate capital buffer rules

The Financial Policy Committee plans to remove one specific buffer from the current leverage ratio and increase the releasable share of others. These adjustments are expected to yield a 0.2 percentage point reduction in requirements for large British banks, which currently hover slightly above 3%. The BoE argues these changes will make the framework more proportionate and better targeted toward domestic stability.

This shift follows a similar relaxation of U.S. leverage rules last November, which heightened competitive pressure on London-based firms. While the leverage ratio was initially designed as a secondary backstop, it had become a binding constraint for three of the seven major British banks, forcing them to hold more capital than their international peers. The proposed reforms, which will undergo public consultation later this year, focus on large, domestically oriented institutions like Lloyds, NatWest, and Santander UK. The central bank intends to provide these lenders with a multi-year window to rebuild their capital positions as it continues to advocate for a simplified, globally supported buffer framework.