Bank of England Reviews Capital Rule Easing

The Bank of England’s Financial Policy Committee (FPC) announced on Tuesday it is evaluating plans to reduce capital buffer requirements for major UK lenders, despite internal concerns regarding systemic financial stability. The proposed changes, which aim to improve the competitive standing of institutions such as Lloyds and NatWest, could lower leverage ratios by an average of 20 basis points.

The mechanism for this policy shift involves removing post-2008 crisis buffers to stimulate domestic lending. However, committee members warned that this liquidity injection could inadvertently fuel debt-driven stock market investments, particularly within the volatile artificial intelligence sector. Increased market-based leverage poses a direct threat to the resilience of core UK financial markets.

Furthermore, the FPC identified rapid advancements in frontier artificial intelligence as a significant driver of operational and cyber risk. The committee noted that these technologies enable malicious actors to execute large-scale system outages at lower costs, potentially destabilizing systemically important financial firms. The FPC is conducting a formal review to identify potential stability gaps, with findings expected by the end of September. This assessment will inform the final policy package scheduled for public consultation in early 2027.