Banks argue that a Bank of England leverage rule tweak could unlock significant new demand for UK government bonds

Major banks are lobbying the Bank of England to amend how the UK's leverage ratio (a regulatory measure requiring banks to hold a minimum layer of capital relative to their total assets, irrespective of risk weighting) is calculated, arguing the change could materially boost institutional demand for UK government bonds (gilts). The argument centres on the treatment of certain highly liquid, low-risk assets within the leverage ratio denominator. Banks contend that if gilts held to meet liquidity requirements were excluded from the leverage ratio calculation, as some other jurisdictions have considered, institutions would face less of a capital cost for holding gilts and would therefore be more willing to absorb new issuance. The proposal has direct relevance to the UK Debt Management Office's ability to place gilts at competitive yields at a time when fiscal borrowing requirements remain elevated. The debate sits at the intersection of prudential regulation, managed by the Prudential Regulation Authority (PRA), and sovereign debt market structure. Proponents argue that aligning the UK approach more closely with international peers would improve market liquidity and reduce the cost of government borrowing. Critics of such tweaks have historically warned that weakening leverage constraints could reduce bank resilience in a stress scenario. No formal PRA proposal has been announced.