Coverage: August 2026 · Information to 1 August 2026
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TGB Monthly Regulatory Policy Brief · 1 August 2026
The Bank of England's Financial Policy Committee plans to lower the UK leverage ratio minimum, scrap the countercyclical leverage buffer and make more capital releasable in stress, as authorities in the US, the euro area, the EU and Canada rework their own leverage and buffer rules.
The desk view
On 7 July 2026 the Financial Policy Committee (FPC) reaffirmed its benchmark for system-wide Tier 1 requirements at around 13% of risk-weighted assets and set out a package to reshape the UK leverage ratio. The FPC and the Prudential Regulation Authority (PRA) intend to consult on removing the countercyclical leverage buffer, cutting the Tier 1 leverage minimum from 3.25% to 3% and adding a releasable general buffer of 25 basis points. Taken with stress-test hurdle changes, the FPC estimates that large UK banks would need to maintain a leverage ratio around 20 basis points lower in aggregate. The PRA has also said it could release O-SII buffers in a systemic stress. Our reading is that the reset is less about the level of capital than about how much of it can be used, and that is the same question now being asked in Washington, Frankfurt, Brussels and Ottawa.
From a lower benchmark to a new leverage package
The July package builds on a decision taken in December 2025, when the FPC judged that the appropriate benchmark for system-wide Tier 1 capital requirements was around 13% of risk-weighted assets, equivalent to a Common Equity Tier 1 (CET1) ratio of around 11%. That was lower than the previous level of around 14%. Having considered feedback, the FPC reaffirmed the 13% benchmark in its Financial Stability in Focus on the bank capital framework, published on 7 July 2026 alongside the Financial Stability Report.
The starting position is a well-capitalised system. Major UK banks had an aggregate CET1 ratio of 14.2% in the first quarter of 2026, against 14.4% in 2025 Q3, and a quarterly average UK leverage ratio of 4.9%, against 5.0%. The FPC kept the UK countercyclical capital buffer (CCyB) at its neutral setting of 2% on 26 June 2026, and it said there were no signs of banks restricting lending to defend capital positions.
The leverage element is where the package changes the rules. Today UK leverage requirements comprise a 3.25% minimum of the leverage exposure measure, which excludes central bank reserves, plus an additional leverage ratio buffer (ALRB) for systemic banks and a countercyclical leverage buffer (CCLB), both set at 35% of their risk-weighted equivalents. The proposed package would remove the CCLB, move the ALRB to 50% of risk-weighted systemic buffers and cut the Tier 1 minimum to 3%, while adding a general leverage ratio buffer of 25 basis points. That new buffer would be met with CET1, would not be subject to automatic restrictions on distributions, and could be released to zero.
UK leverage ratio framework, current and proposed
| Element | Current | Proposed (July 2026) |
|---|---|---|
| Tier 1 minimum, % of exposure measure | 3.25% | 3% |
| Countercyclical leverage buffer | 35% of CCyB | Removed |
| Additional leverage ratio buffer | 35% of systemic buffers | 50% of systemic buffers |
| General leverage ratio buffer | None | 25bp, releasable to zero |
| Stress-test leverage hurdle | Generally minimum plus 35% of systemic buffers | Minimum plus 40% of systemic buffers |
| Retail deposits scope threshold | £75bn from 1 January 2026 (was £50bn) | PRA to consult on automatic indexation of regulatory thresholds later in 2026 |
Source: Bank of England, Financial Policy Committee, Financial Stability in Focus: The bank capital framework (July 2026), 7 July 2026; Bank of England, Prudential Regulation Authority, PS22/25 - Leverage Ratio: Changes to the retail deposits threshold for application of the requirement, 12 November 2025.