The Prudential Regulation Authority has launched a consultation on lifting the retail deposits leverage ratio threshold that banks must hold to £70bn — from £50bn.
The leverage ratio is designed to give a simple percentage indicator of how much capital a firm has to fund its lending on mortgages, credit cards and other loans.
The Bank of England body currently requires firms with over £50bn in retail deposits, or £10bn of non-UK assets, to meet a minimum leverage ratio requirement of 3.25% plus buffers.
These thresholds took effect in 2016 and 2023 respectively, and were put in place to ensure the financial stability of major UK banks, building societies and investment firms.
This measure would benefit smaller lenders, giving them more headroom to grow before having to comply with stricter requirements.
The proposals come after the Chancellor has called on regulators to cut City red tape. Rachel Reeves said last year that rules that came into force after the 2008 financial crisis had “gone too far”.
The Prudential Regulation Authority says its proposals, “reflect nominal gross domestic product growth since 2016”.
It adds: “This increase would ensure that the threshold continued to capture major UK firms, while smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement.”
Prudential Regulation Authority chief executive and Bank of England deputy governor Sam Woods says: “Guarding against excessive leverage in our banking system is essential for economic stability, but we should achieve that in a proportionate way.
“Today’s proposals will support growth and innovation by giving smaller banks more space to grow before entering the leverage regime.”
The body is not proposing changes to the £10bn non-UK asset threshold, which it says “was implemented much more recently than the retail deposits threshold, and continues to operate as intended”.
