Bank of England sets out plan to ease bank leverage rules 

By Phoebe Seers and David Milliken

The Bank of England on Tuesday set out plans to relax rules on how much capital banks have to hold against shocks, aiming to align requirements for British banks more closely with international standards as regulators globally come under pressure to revisit requirements aimed at shoring up resilience.

The BoE's Financial Policy Committee announced work to enhance the usability of capital buffers so that they can be more easily released without automatically restricting payouts to shareholders and also said it would soften the impact of the leverage ratio, which requires lenders to hold a minimum ratio of capital against total assets.

The central bank's move to soften leverage rules and other buffers follows a relaxation of U.S. leverage requirements in November, a development that increased competitive pressures for British lenders.

When the leverage ratio was introduced it was intended as a backstop to risk weighted capital requirements, though the BoE said it has become binding for three out of seven major British banks and caused them to have a higher obligations than international peers.

The BoE said it would remove one buffer from the leverage ratio and make a greater share of other buffers releasable among proposed changes, estimating a 0.2 percentage point reduction in leverage requirements for large British banks, which currently stand at a bit over 3%.

The changes would make the framework "more proportionate and more effective by being better targeted," the FPC said.

The BoE also said its work on buffer usability, which aims to reduce banks' incentives to restrict lending in a stress, would only impact large, domestically focused banks like Lloyds, NatWest and Santander UK, as rules for international banks are set by Basel. As part of that package, which will be subject to public consultation later in the year, banks will be given multiple years to rebuild buffers.

The FPC said to reduce complexity and further enhance buffer usability, it sees a clear case for a single buffer that is releasable in stress, which could only be achieved with international support.

"The FPC will work with the (Prudential Regulation Authority) and international authorities to pursue broad reform of the capital buffer framework and move towards this vision," it said.