Bank of England consults on exempting more small lenders from leverage rule

LONDON (Reuters) -The Bank of England's Prudential Regulation Authority (PRA) is consulting on raising the retail deposits leverage ratio threshold, a move designed to allow smaller lenders to avoid the leverage rules which cover the country's major banks.

The ratio is aimed at indicating what level of capital Britain's major banks, building societies and investment firms should have to fund their activities.

The threshold at which it applies has been fixed in cash terms since 2016, meaning smaller firms have been dragged into the regime as inflation and the size of the economy has risen.

The Bank of England said on Wednesday that the PRA will consult on raising the retail deposits leverage ratio threshold by 20 billion pounds ($25.7 billion) to 70 billion pounds, to reflect nominal GDP growth over the last nine years.

"Guarding against excessive leverage in our banking system is essential for economic stability, but we should achieve that in a proportionate way," BoE Deputy Governor for Prudential Regulation Sam Woods said in a statement.

"Today's proposals will support growth and innovation by giving smaller banks more space to grow before entering the leverage regime," he added.

Finance minister Rachel Reeves said in a major speech in November that regulators had gone too far in trying to squeeze out financial risk at the expense of economic growth.

The PRA said it was not proposing any changes to a 10 billion pound non-UK asset threshold which was implemented more recently and was operating as intended.

($1 = 0.7791 pounds)

(Reporting by Muvija M; writing by Sarah Young; editing by David Milliken)