The Bank of England Is Giving Banks More Money to Lend—But Some Officials Are Worried

In June 2026, the Bank of England's Financial Policy Committee decided to change a rule that affects how much spare cash Britain's biggest banks have to set aside. The banks in focus are NatWest, Lloyds, Nationwide, and Santander UK. Under the new plan, these lenders could free up roughly 20 basis points—a technical way of saying a small but meaningful percentage—of their capital reserves. That money, once released, can be used to make new loans The Guardian.

What This Rule Actually Does

After the 2008 financial crisis, regulators introduced a system to make sure banks hold enough cash on hand to survive hard times. Think of it like an emergency fund. The leverage ratio is one of several safety checks. It compares a bank's core capital—their own money, essentially—to all the money they have out lending or invested. It acts as a floor, a hard limit below which banks cannot fall, even if all their complicated risk calculations say they have room to go lower.

The Bank of England is proposing to reduce the size of the buffer built into that ratio. A buffer, in plain terms, is money that sits unused and untouched. The Committee's own logic is straightforward: buffers are supposed to be used during crises, not sit locked away forever Bank of England. So it is removing an extra safety cushion to let banks access capital that has been held back.

The Split Among Regulators

Not everyone at the table agreed. Some Committee members raised a concern worth taking seriously. They worry that loosening the rules for regular banks could have an unintended side effect: it might push money into riskier corners of the financial system where regulators have less power to watch. Specifically, they flagged hedge funds—less-regulated investment firms—that are using borrowed money to bet heavily on artificial intelligence stocks The Guardian.

At the same time, the Committee flagged something else that worried them: artificial intelligence itself has become a potential threat to the stability of financial systems. AI technology is advancing faster than experts predicted. That means criminals or hostile actors now need less money and fewer resources to disrupt banks' computer systems or cause outages. The Committee even mentioned Anthropic's Mythos AI model as an example of how quickly these frontier systems are improving—it has only been given to a handful of approved companies so far, yet it shows how fast the technology is moving The Guardian.

What Happens Next

The broader context here is uncomfortable. The Bank of England designed these capital buffers after 2008 to act as the financial system's shock absorber. Regulators are now loosening them because they say the money isn't being used as intended. Yet in the same breath, they are warning that leverage—borrowed money being used to magnify bets—is quietly accumulating in places they don't regulate as closely: hedge funds chasing AI valuations, AI systems touching the infrastructure that runs finance. The regulator appears to be managing two different timelines at once: one for traditional banks moving on a slower, predictable schedule, and another for technology and market movements spinning much faster.

The Bank of England has committed to a review, due by the end of September 2026, to check whether the capital rule changes create any financial stability gaps. That work will feed into a formal consultation expected in early 2027 Bank of England. The timeline gives them roughly three months to assess second-order effects—including the leverage concerns that some members raised—before they lock in a rulemaking process that could run well into next year.

New leadership also matters for context. Katharine Braddick began her role at the PRA—the arm of the Bank of England that supervises banks—on 1 July 2026, just days before the FPC record came out Bank of England PRA Annual Report. The Bank also recently refreshed the scenarios it uses to test how well banks would survive a crisis, suggesting AI-related risks and cyber attacks may feature more explicitly in future tests, though that is not yet confirmed.

What It Means Now and Later

For the banks affected, the change is straightforward: they get back some capital and have more room to increase lending. For the Bank of England, the harder work begins. The September review needs to answer a crucial question: Is it safe to relax the buffers inside the regulated banking sector only if the same move does not push leverage to grow unchecked in places like hedge funds, AI-heavy investment portfolios, and the digital systems increasingly powered by advanced artificial intelligence?