UK bank capital rules: the leverage ratio is the line worth watching

Basel 3.1 takes effect on 1 January 2026 in the UK, and the PRA's near-final package includes targeted easings for SME lending and infrastructure capital, but broadly preserves the post-2008 capital architecture. The political pressure to go further, specifically to ease leverage ratio constraints, is coming from large banks with significant trading book exposures rather than from the retail and SME lending economy the government says it wants to grow. That distributional point matters: the leverage ratio is a non-risk-weighted backstop designed precisely because internal models underestimated pre-crisis exposures. Weakening it now, with commercial real estate under stress and interest rate risk still elevated on many bank balance sheets, is a timing problem as much as a structural one. Labour's stated position is resilience plus growth. Any move that is primarily growth-by-loosening, without a credible resilience offset, tests that framing directly. Boards at mid-sized UK banks should be tracking the leverage ratio lobbying closely, because the outcome sets the competitive floor for the next decade.