Bank of England to relax bank capital rules

The Bank of England has announced plans to relax key capital rules for major UK banks, a move aimed at aligning regulations with international standards and stimulating lending, even as it warned of heightened financial stability risks from artificial intelligence and debt-fuelled stock market investments.

The central bank's Financial Policy Committee (FPC) set out the proposals on Tuesday, July 7, 2026. The changes primarily target the leverage ratio, a rule introduced after the 2008 financial crisis that requires banks to hold a minimum amount of capital against their total assets. The FPC plans to remove the Countercyclical Leverage Buffer from this ratio and make a greater share of other capital buffers releasable during periods of stress.

Officials estimate the reforms would reduce leverage requirements for large UK banks by an average of 0.2 percentage points. The changes are expected to benefit domestically-focused lenders such as Lloyds, NatWest, Nationwide, and Santander UK by freeing up capital previously held in reserve. The FPC stated the goal is to make the regulatory framework more proportionate and effective.

The banking industry has welcomed the proposals. The...