On 5 March 2025 the Prudential Regulation Authority (PRA) published a consultation paper on its proposals to raise the retail deposits leverage ratio threshold, increasing it to £70 billion to reflect nominal GDP growth since 2016. This increase would ensure that the threshold continued to capture major UK firms, whilst smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement.
On 5 March 2025 the PRA published a consultation paper on its proposals to raise the retail deposits leverage ratio threshold, increasing it to £70 billion. The proposals relate to adjusting one of the thresholds for application of the Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook.
The leverage ratio is designed to give a simple percentage indicator of how much capital a firm has to fund its activities. In other words, it serves as a simple solvency measure, indicating a firm's capital resources relative to its exposures without risk-weighting, functioning as a backstop against errors in risk weighting and limiting excessive balance sheet growth.
The PRA currently requires firms with over £50 billion in retail deposits or £10 billion of non-UK assets to meet a minimum leverage ratio requirement of 3.25% plus buffers. The PRA is now proposing to raise the retail deposits threshold, increasing it to £70 billion – an increase of £20 billion. This increase would ensure that the threshold continued to capture major UK firms, whilst smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement. This adjustment is also aimed at addressing the inadvertent regulatory tightening caused by nominal UK GDP growth since the threshold's implementation in 2016, ensuring the framework's proportionality is preserved. The PRA is not proposing to change the £10 billion non-UK assets threshold at this time.
The consultation paper outlines the rationale for increasing the threshold, including addressing 'prudential drag' and ensuring that the leverage ratio requirement captures firms that pose a significant risk to UK financial stability. It also details the PRA's consultation process, including feedback from the Cost Benefit Analysis (CBA) Panel, which has influenced the proposal's development. The PRA has considered the impact of the proposals on mutuals and has conducted a thorough cost-benefit analysis, concluding that the benefits of the proposal, such as supporting competition and potentially reducing operational and compliance costs for some firms, outweigh the minimal identified costs.
The proposal is relevant to major UK banks, building societies, investment firms, and those with significant non-UK assets. The deadline for responses is 5 June 2025. The PRA intends for the implementation date for the changes consulted on in CP2/25 to be 1 January 2026.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
