On 5 March 2025, the Prudential Regulation Authority (PRA) published a consultation paper, CP2/25, on the Leverage Ratio: changes to the retail deposits threshold for application of the requirement.

Background

The leverage ratio is intended to give a simple percentage indicator of how much capital a firm has to fund its activities. Firms with over £50 billion in retail deposits, or £10 billion in non-UK assets, are currently required to meet a minimum leverage ratio requirement of 3.25% plus buffers. These thresholds took effect in 2016 and 2023 respectively and are designed to capture major UK banks, building societies and investment firms.

Proposed increase

Under the proposals, the PRA would increase the retail deposits threshold by £20 billion to £70 billion, which it explains is to reflect nominal GDP growth since 2016. The higher threshold is intended to ensure that major UK firms continue to be captured, whilst smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement.

The £10 billion non-UK asset threshold would remain the same, as it was implemented much more recently than the retail deposits threshold and the PRA notes that it continues to operate as intended.

Commenting on the proposals, the PRA’s CEO and Deputy Governor for Prudential Regulation, Sam Woods, highlighted that whilst it is essential to protect against excessive leverage in the banking system, this must be done in a proportionate way. The proposals set out in CP2/25 aim to support growth and innovation by giving smaller banks more space to grow before entering the leverage regime.

Next steps

The consultation closes on 5 June 2025.