Bank of England Deputy Governor Sam Woods has rejected calls from the banking industry to further relax rules on bank leverage, despite pressure to reduce regulatory burdens. The British government is seeking to soften finance industry regulations to boost economic growth and better compete with the U.S. Woods, who also heads the UK’s Prudential Regulation Authority as CEO, addressed ministers and industry leaders, stating that some suggested measures could sharply increase bank leverage and weaken safeguards against excessive risk-taking.
Woods specifically cautioned against removing highly-rated government bonds from the leverage framework. He argued this would risk repeating the mistakes of Silicon Valley Bank’s collapse in 2023, where large holdings of long-term government bonds became vulnerable as interest rates rose. The leverage ratio, introduced post-2008 financial crisis, sets a minimum capital level banks must hold relative to total exposures, regardless of asset risk, limiting borrowing and ensuring loss absorption.
Industry group UK Finance has argued for excluding gilts (UK government bonds), stating that lenders hold fewer domestic government bonds than European and U.S. peers because the leverage ratio treats gilts as full exposures despite their low-risk profile. Woods countered that removing sovereign bonds would largely eliminate sovereign risk from the bank capital regime, exposing banks to interest rate shocks if large bond holdings were sold off under stress. The Bank of England is committed to a review of capital requirements in December.
Separately, Financial Conduct Authority CEO Nikhil Rathi highlighted the UK’s vulnerability to challenges like cyber attacks and production shocks. Rathi suggested a “national resilience fund” to invest in dual-use technologies and critical systems, stating that Britain’s security and competitiveness depend on integrating finance with national security.