Here’s a policy tweak that sounds boring but could move billions: banks are pushing the Bank of England to stop counting UK government bonds against their leverage ratios. If that sentence made your eyes glaze over, the translation is simple. Banks want permission to buy more government debt without it making them look riskier on paper.
The pitch, laid out in a Barclays report, argues that excluding unencumbered UK gilts from leverage exposure calculations would generate roughly £150 billion in additional demand for British government bonds. That kind of buying pressure could push gilt yields down by up to 20 basis points, saving the UK government an estimated £2.5 billion per year in debt-servicing costs.
What the leverage ratio actually does
The leverage ratio is one of those post-2008 financial crisis inventions designed to keep banks from getting too clever with risk models. Unlike risk-weighted capital requirements, which let banks assign different risk levels to different assets, the leverage ratio is blunt by design. It’s a simple calculation: capital divided by total exposures, no exceptions.
That “no exceptions” part is exactly what banks want to change. Under current rules, even the safest assets, including UK government bonds, count toward a bank’s total exposure. Which means every gilt a bank buys eats into its leverage capacity, limiting how much other business it can do.
