UK Finance, representing major banks including HSBC, Bank of America, and Goldman Sachs, is urging the UK Treasury to exempt Treasury bills (T-bills) from the leverage ratio capital rule. This move aims to make short-term government debt more attractive, enabling banks to expand market-making activities. The proposal, part of a broader strategy to grow the UK’s nascent T-bills market, would align the nation’s approach with global trends toward ultra-short-term debt instruments.

Currently, T-bills account for just 3% of UK central government debt, compared to 20% in the US. The Debt Management Office (DMO) plans to increase T-bill issuance to £13 billion by 2026-27, per a Bloomberg survey. However, banks argue the leverage ratio—which mandates capital reserves against risk-weighted assets—disproportionately penalizes T-bills due to their market risk, despite their shorter duration reducing volatility. The Bank of England is separately reviewing the leverage ratio’s implementation, acknowledging its role in stabilizing the financial system post-2008 crisis.

UK Finance also advocates for a one-year T-bill tenor to attract short-duration bond funds and grant primary market participants similar benefits to gilt-edged market makers, such as access to syndicated DMO offerings. Additionally, the industry is pressing for tax reforms, citing retail brokerages’ success with gilt trading due to capital gains exemptions. These changes could mirror the US market, where T-bills are a cornerstone of liquidity provision.

The DMO emphasizes it will assess feedback “with a full analysis of cost and risk” before finalizing its 2026-27 debt sales plan. While the Bank of England avoids commenting, analysts suggest regulatory adjustments could unlock £13 billion in strategic funding, reshaping the UK’s fixed-income landscape. The outcome may hinge on balancing stability with innovation in a market still finding its footing.