The UK's stringent bank capital requirements are hampering economic growth, according to UK Finance, the banking industry's trade association. In a submission to the Bank of England, the organization argues that the current regulatory framework is overly complex and internationally uncompetitive, suppressing lending to households and businesses.

UK banks face higher capital requirements than many global peers despite comparable or lower risk profiles. The ringfenced banks must hold approximately £28bn in common equity tier one capital from various buffers alone, representing potential lending capacity of £250bn that could support the economy. This excess capital requirement creates perverse incentives for banks to favor non-domestic lending where charges are lower.

The UK's leverage ratio implementation exceeds global Basel standards, becoming a binding constraint rather than a simple backstop. Meanwhile, the EU and US are simplifying their capital regimes, with US banks seeing reductions in required buffers ranging from 4.8% to 7.8%. UK Finance calls for targeted reforms including addressing buffer overlaps, recalibrating the leverage ratio, and aligning with international developments to unlock lending capacity while maintaining system resilience.