Banks Brace for Bank of England Review That May Ease Leverage Ratio

Bank executives and market watchers are preparing for a review by the Bank of England that industry participants expect will include a loosening of the leverage ratio. The potential change, anticipated as part of a broader reassessment of capital requirements, could free up regulatory capital and support lending capacity across UK lenders while the central bank continues to weigh systemic risk.

The leverage ratio sets a backstop on banks’ balance sheets by limiting leverage irrespective of risk-weighted asset calculations. Easing that ratio would not remove other capital safeguards, but it could reduce the amount of high-quality capital banks must hold against total exposures. For lenders operating with tight buffers, even a modest relaxation could translate into greater headroom for business lending, mortgage supply or capital returns to shareholders.

Regulators face a trade-off: loosening a mechanical constraint can relieve operational pressures on banks and support economic activity, yet it may also reduce the margin of safety against sudden shocks. Market participants say the Bank of England is likely to pursue a calibrated adjustment rather than a dramatic rollback, combining any leverage ratio changes with ongoing supervisory expectations and stress-testing regimes to preserve resilience.

The review comes amid a backdrop of evolving macroeconomic conditions and a recognition that capital frameworks must reflect both financial stability and the need for a well-functioning lending sector. Banks have been engaging with supervisors and industry bodies to outline practical implications and to argue for proportionate treatment consistent with lending objectives and risk management practices.

If the BoE proceeds with easing, banks could redeploy capital toward lending initiatives, improve liquidity management or modestly bolster dividend and buyback programmes where permitted. Investors will be closely watching the details — notably the scale of any reduction, transitional arrangements, and how the change will interact with other regulatory tools such as stress tests and liquidity requirements.

Ultimately, the outcome of the review will signal how the Bank of England balances support for credit intermediation with its mandate to maintain financial stability. Market participants say clarity and predictability in the framework will be crucial to avoid unintended consequences and ensure banks can plan capital and lending strategies with confidence.