Bank of England Weighs New Capital Thresholds for Smaller Lenders

The Bank of England is weighing an increase to its retail deposits leverage ratio threshold.

Such a move, the central bank’s Prudential Regulation Authority (PRA) said Wednesday (March 5), would exempt smaller banks from the rules governing the U.K.’s banking giants.

“Guarding against excessive leverage in our banking system is essential for economic stability, but we should achieve that in a proportionate way,” Sam Woods, deputy governor for prudential regulation and CEO of the PRA, said in a news release.

“Today’s proposals will support growth and innovation by giving smaller banks more space to grow before entering the leverage regime.”

The change would raise the retail deposits leverage ratio threshold — an indicator of how much capital a bank has to fund its activities — from 50 billion pounds to 70 billion pounds.

The current level requires firms with more than 50 billion pounds in retail deposits or 10 billion pounds of non-U.K. assets to meet a minimum leverage ratio requirement of “3.25% plus buffers,” the PRA said, rules designed to cover major U.K. banks, building societies and investment firms.

The PRA says it wants to raise the threshold to reflect GSP growth since 2016 — when the rule was instituted — thus making sure it covered major banks while giving smaller lenders room to grow before becoming subject to the rule.

The announcement comes amid other changes by the British central bank. For example, a report by the Financial Times earlier this year said the Bank of England was considering the establishment of a “concierge service” to help foreign companies do business in the U.K.

Woods said at the time the PRA “recognizes and strongly supports” the government’s focus on enhancing growth and “responsible risk-taking,” while stressing that its key objective remains preserving financial stability, without which growth would suffer.

And as covered here in January, the PRA and other regulators have also said they would revise their agreements on collaborative efforts to line up with the country’s “National Payments Vision,” aimed at upgrading England’s payments infrastructure and expanding payments choice for consumers and businesses.

“In a sign of that enthusiasm for digital payments, PYMNTS Intelligence has estimated that, in one example, peer-to-peer (P2P) transactions via digital wallets have gained traction,” that report said, with data showing that 42% of British consumers use digital wallets to pay merchants online.