PS22/25 – Leverage Ratio: Changes to the retail deposits threshold for application of the requirement

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to consultation paper (CP) 2/25 – Leverage Ratio: changes to the retail deposits threshold for application of the requirement. This PS also contains the PRA’s final policy in relation to the retail deposits threshold for application of the leverage ratio requirement, which increases the threshold from £50 billion to £75 billion and introduces a three-year averaging mechanism for the calculation of firms’ retail deposits. The final policy and rules are set out in the following appendices to this PS:

• amendments to the Leverage Ratio (CRR) Part of the PRA Rulebook (Appendix 1); and
• updates to supervisory statement (SS) 45/15 – The UK leverage ratio framework (Appendix 2).

1.2 This PS is relevant to Capital Requirements Regulation (CRR) firms and CRR consolidation entities on an individual, consolidated, and where relevant, sub-consolidated basis.

Background

1.3 The leverage ratio is a simple indicator of solvency that divides firms’ capital resources by the value of their exposures without adjusting for risk. There are two thresholds that determine whether a firm is subject to the leverage ratio requirement – one is set at £50 billion retail deposits to capture large domestic firms, whilst the other is set at £10 billion non-UK assets to capture internationally active firms.

1.4 In CP2/25 the PRA proposed to:

• increase the retail deposits threshold for the application of the requirement from £50 billion to £70 billion, to reflect increases in nominal UK GDP since its introduction; and
• keep the non-UK assets threshold unchanged at £10 billion.

1.5 In determining its policy, the PRA considers representations received in response to consultation, publishing an account of them and the PRA’s response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the PRA’s feedback.

1.6 In carrying out its policy making functions, the PRA is required to have regard to various matters. In CP2/25, the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter refers to that explanation, considering consultation responses where relevant.

Summary of responses

1.7 The PRA received seven responses to the CP. The names of respondents to the CP are set out at Appendix 1. Respondents generally welcomed the PRA’s proposals to increase the retail deposits threshold for application of the leverage ratio requirement, with suggestions for a greater increase or for changes to the mechanism by which firms are captured. Some respondents sought clarity on the frequency of future reviews of the leverage ratio threshold. One respondent requested that the PRA also increase the non-UK assets threshold from £10 billion. There were a number of responses beyond the scope of CP2/25, with one questioning the appropriateness of applying the leverage ratio to building societies and another asking for definitions of some broad concepts used in the context of the scope of application of the leverage ratio.

Changes to draft policy

1.8 The PRA has amended the final policy as follows, with other elements remaining as consulted on:

• the retail deposits threshold will be increased to £75 billion; and
• the metric of firms’ retail deposits that is compared to the threshold will be calculated using a three-year averaging mechanism.

1.9 This PS takes account of how the policy advances the PRA’s objectives and of significant matters that the decision maker had regard to. These are as set out in CP2/25.

1.10 The PRA considers the costs and benefits of the finalised policy set out in this PS do not significantly differ from those in the proposal in CP2/25. The PRA notes, however, that there may be some overall cost reductions for firms, as a result of both a higher retail deposits threshold and firms’ ability to better plan for becoming subject to the leverage ratio requirement due to the averaging mechanism. The PRA does not consider that these changes will have a significantly different impact on mutuals relative to that of the rules consulted on, or relative to the impact that the changes would have on other PRA-authorised firms.

1.11 When making rules, the PRA is required to comply with several legal obligations. In CP2/25, the PRA published its explanation of why the rules proposed in the CP were compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [1]}

1.12 In addition, when making CRR rules or rules applying to certain holding companies, the PRA must also publish a summary of the purpose of the proposed rules.^{footnote [2]} The purpose of the rules is to ensure that the threshold capturing ‘major UK banks, building societies and investment firms’ (pursuant to an Financial Policy Committee (FPC) Direction) reflects the risk appetite behind the UK leverage ratio framework and preserves the proportionality of the framework. In particular, the proposal aims to address inadvertent regulatory tightening caused by nominal UK GDP growth since the threshold was implemented in 2016.

Implementation

1.13 The policy will take effect on 1 January 2026. The PRA will continue to assess the effectiveness and appropriateness of both leverage ratio requirement thresholds as part of the FPC’s annual reviews of the overall leverage ratio framework.

1.14 The PRA granted modifications by consent to firms meeting certain criteria to disapply the Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook while the thresholds for its application were under review. The publication of the PS marks the end of this review period and these modifications will cease to apply on 30 June 2026.

2: Feedback to responses

2.1 Before making any proposed rules, the PRA is required by FSMA^{footnote [3]} to have regard to any representations made to it in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [4]}

2.2 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions. The responses have been grouped as follows:

• responses in relation to the retail deposits threshold proposal;
• responses relating to our intention not to change the non-UK assets threshold at this time; and
• responses beyond the scope of our consultation.

Responses to the retail deposits threshold proposal

2.3 The PRA proposed to increase the retail deposits threshold in its consultation, with the proposed increase based on the growth in nominal UK GDP observed between 2016 Q1 (when the threshold came into force in PRA rules) and 2024 Q2 (the latest point in time for which official Office for National Statistics (ONS) data on nominal GDP was available when the PRA agreed the proposal). This led to a proposed new threshold of £70 billion retail deposits, £20 billion higher than the current threshold.

2.4 Three respondents suggested that the PRA should align its thresholds with the approach for determining participation in the Bank Capital Stress Test. One respondent suggested instead using a mix of quantitative and qualitative criteria to capture the intended population of firms, rather than one nominal threshold. Two respondents suggested the threshold could become ‘outdated’ by the time of implementation. They (and one other respondent) suggested we commit to regular and timely updates to the threshold in the future, with one suggesting the introduction of a rebasing mechanism and another that the PRA ‘futureproof’ the threshold based on projections of nominal GDP growth up until the end of 2027.

2.5 Three respondents said the threshold would have negative effects on the ability for building societies to grow – including where they may be relatively far from the threshold – given the forward-looking nature of their capital planning and wider restrictions on building societies’ ability to increase their capital quickly. A further respondent argued for an implementation delay of 12 months, to give firms time to prepare.

2.6 Having considered the responses, the PRA has decided to set the final retail deposits threshold at £75 billion instead of £70 billion to reflect the further increase in nominal UK GDP since consultation, and so fully restore the FPC’s original risk appetite for the framework.^{footnote [5]} The PRA has decided against aligning the threshold more closely to the approach for determining participation in the Bank Capital Stress Test, for the reasons set out in CP2/25, including the importance of restoring the original risk appetite behind the leverage ratio framework. The PRA does not agree that forecasts should be used to ‘futureproof’ the threshold, given the uncertainty of any forecast of nominal GDP growth. It also judges that a single numerical threshold – with its predictability and transparency – remains most appropriate for a threshold for a capital requirement.

2.7 The PRA has also decided, reflecting on the response that the threshold would have negative effects on the ability of building societies to grow, that the metric of firms’ retail deposits to be compared against the threshold should be calculated on a three-year moving average basis, rather than use a point-in-time value. This should help smooth any ‘cliff-edge’ effects for building societies and other firms and give them more sight of any approaching changes in capital requirements, helping their capital planning.

2.8 With regard to the response suggesting a rebasing mechanism, the PRA does not intend to apply automatic rebasing at this time. The PRA notes the intention communicated in CP2/25 to assess the effectiveness and appropriateness of both thresholds as part of the FPC’s annual reviews of the overall leverage ratio framework. As noted previously^{footnote [6]}, the PRA is considering a wider approach to indexing thresholds to avoid ‘prudential drag’^{footnote [7]}.

Non-UK asset threshold responses

2.9 In CP2/25, the PRA did not propose to change the £10 billion non-UK assets threshold. This was because the £10 billion threshold was not causing substantial prudential drag, partly because it was implemented more recently, in 2023.

2.10 One respondent suggested that we increase the £10 billion non-UK assets threshold as they claimed its calibration was too low and therefore that it captures firms too small to pose risks to UK financial stability. The respondent drew attention to the additional burden of LR buffers and more onerous reporting and disclosure requirements. They also challenged the use of non-UK assets as a threshold metric as it includes assets susceptible to changes in market values.

2.11 Having considered this response, the PRA has decided to leave both the metric and threshold for application of the requirement for non-UK assets as they currently are. The PRA does not agree that the threshold captures firms which are too small. The PRA continues to consider that the threshold captures the major UK investment firms, as well as an additional small number of the larger and more interconnected firms. The PRA notes that the FPC agreed in 2021 that this threshold would capture the types of firms set out in its Direction.

2.12 Furthermore, the PRA does not believe that the threshold remaining unchanged has created prudential drag, in part because the increase in nominal GDP since 2023 is not judged to be material in this context. The PRA also does not consider that the threshold metric should change on the basis that it is subject to changes in market values. While all asset-based measures have this feature, the averaging mechanism used in the calculation of non-UK assets avoids firms being captured due to one-off spikes in the value of these assets. As noted above, the PRA remains committed to continuing to assess this threshold at the FPC’s annual leverage ratio review.

Responses beyond the scope of our consultation

2.13 One respondent said the PRA should have assessed the impact of the leverage ratio requirement on firms as a whole in its cost-benefit analysis, and not just the proposed change to the retail deposits threshold. The respondent questioned the appropriateness of applying the leverage ratio requirement to building societies. To support this, it noted the statutory restrictions building societies face and that the Basel Committee on Banking Supervision (BCBS) does not require that its standards apply to domestically focussed firms; it also claimed that building societies’ mortgage models have greater reliability than those of traditional banks (adding that there are now better regulatory safeguards around modelling risk – a point made by one other respondent). Another respondent broadly concurred that the PRA should more fundamentally reconsider the population of firms captured by the leverage ratio requirement.

2.14 One respondent asked the PRA to clarify definitions of terms used in the leverage ratio framework: specifically, ‘complex business model’, ‘significant firm’ and ‘systemic’. Various respondents requested changes to leverage ratio buffers and capital quality with the suggestion that we align more to BCBS standards, and one respondent requested that the PRA exempt gilts from the leverage ratio.

2.15 These responses were judged to be outside the scope of this consultation and concerned the FPC leverage ratio Direction more broadly. The PRA views that its cost-benefit analysis correctly focussed only on the specific policy change proposed, in accordance with statement of policy (SoP) 14/24 – The PRA’s approach to cost benefit analysis, and as required by FSMA. Moreover, in its 2025 Q3 Record, the FPC judged that the leverage ratio framework set out in its Direction – including that the requirement should apply to ‘each major UK bank, building society or investment firm’ – should remain unchanged. It should be noted, however, that the leverage ratio forms part of the FPC’s ongoing refresh of its assessment of the overall level of capital requirements in the UK banking system.

2.16 One respondent called for indexing other nominal thresholds across the prudential regulatory landscape. The PRA views this response to be out of scope of this consultation but notes that it is considering wider indexation of thresholds, as mentioned in paragraph 2.8.