Bank of England plans to ease leverage guidelines on UK lenders | USAEMALL.com

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The Bank of England has proposed lifting the size threshold that restricts how much British banks can borrow to fund their activities.

The move is the latest indication that rulemakers are responding to calls by Sir Keir Starmer’s government to support the UK’s flagging economy by easing the burden of regulation, particularly for smaller businesses.

The BoE’s Prudential Regulation Authority said on Wednesday it would lift the limit for the UK retail deposits a bank can have before it has to comply with its “leverage ratio” rules, from £50bn to £70bn to adjust for inflation and economic growth.

British banks with at least £10bn of foreign assets will still have to comply with the ratio, which was introduced in 2016 and requires banks to have loss-absorbing capital equal to at least 3.25 per cent of their exposures. Some banks have extra buffers above that level.

The leverage ratio was one of the measures introduced by financial regulators to restrict the amount of borrowing banks use to fund their activities after the 2008 financial crisis forced many of them to be bailed out by the taxpayer. 

“Guarding against excessive leverage in our banking system is essential for economic stability, but we should achieve that in a proportionate way,” said Sam Woods, head of the BoE’s Prudential Regulation Authority, which supervises banks and insurers.

“Today’s proposals will support growth and innovation by giving smaller banks more space to grow before entering the leverage regime,” he said.

The BoE has been considering raising many of the size thresholds above which financial institutions are forced to apply some of its rules. Indexing these limits to inflation and economic growth would “avoid ‘prudential drag’ in which fixed thresholds become more binding over time as the economy grows”, Woods said in October.

The authority has already raised the size limit above which UK banks have to comply with its “ringfencing” rules that require them to split their consumer-facing operations from other activities. 

It has also proposed a simplified set of capital rules for smaller lenders and a higher size threshold above which banks have to issue a special form of debt that is designed to be written off during a crisis.

The PRA said banks had until June 5 to respond to its consultation on the proposals and it planned to announce changes by the start of next year.