The Bank of England has cut its estimate for the level of capital reserves that banks must hold to protect against their collapse, in a significant loosening of post-financial crisis regulations.
The new capital requirements for banks will be lowered from about 14% to 13% of risk-weighted assets, under the Bank’s proposals.
This refers to the amount that banks must set aside as a buffer against risky lending and investments, to cushion against any losses.
The rules were introduced in the aftermath of the 2008 financial crisis to help prevent banks from excessive risk-taking and protect them from failure.
The Bank’s Financial Policy Committee (FPC) said the reduced benchmark should mean banks have more certainty and confidence to use their capital to lend to UK households and businesses.
Its judgement was “consistent with the evolution of the financial system” since it first assessed capital requirements a decade ago.
UK banks typically have less risk on their balance sheets now than since the beginning of 2016, the FPC found in its review.
They have also tended to have capital headroom over the required amount.
The FPC said its updated requirements were in line with its view that the UK banking system is resilient and can support households and businesses even if economic conditions got substantially worse.
