The Bank of England's Financial Policy Committee plans to lower the leverage ratio, a capital requirement for UK banks, by approximately 0.2 percentage points of total assets. This move aims to encourage lending and support financial markets during crises, representing a rollback of post-2008 restrictions. While intended to bolster resilience, some officials expressed concern that the adjustment could escalate market-based leverage and impact core market stability.

The central bank acknowledged rising financial system vulnerabilities, including increased leverage in equity markets and stretched valuations reminiscent of the dot-com bubble. It noted a 40% rise in debt provided by investment banks to hedge funds for leveraged equity bets, reaching record levels. The BoE also flagged risks from advanced AI capabilities and high government debt issuance.

Under the proposed reforms, larger domestic banks like Lloyds Banking Group and NatWest will see relief during stress periods, with an "other systemically important institutions" capital buffer potentially reduced to zero. The leverage ratio relief is expected to benefit domestically focused banks more than global lenders like HSBC. This adjustment follows similar easing of leverage ratio rules by U.S. regulators earlier this year.