Bank of England plans to ease capital rules despite AI stability fears | Bank of England

The Bank of England plans to relax capital requirements for major lenders in the UK, even as policymakers have raised concerns about the threat to financial stability from rapid artificial intelligence developments and debt-backed equity investments.

The central bank said Tuesday it was considering repealing and relaxing some rules introduced after the 2008 financial crisis that set the size of the fiscal buffer needed to protect consumers and taxpayers and cover losses when things go wrong.

The bank’s financial policy committee (FPC) said this included plans to remove the long-standing buffer called the leverage ratio, which would primarily benefit the largest of Britain’s domestically focused banks and housebuilders, including NatWest, Lloyds, Nationwide and Santander UK.

Current proposals for consultation could reduce lenders’ leverage by an average of 20 basis points, helping them gain an advantage over international peers and encouraging lending that supports the UK economy more broadly.

However, some committee members expressed concerns that reducing these buffers could increase existing risks to the financial system.

For example, a new wave of loans could increase the number of loans made to investors, including hedge funds, which have already used large amounts of debt to buy company shares on the stock market.

Most of the debt-driven investments have been in AI-related stocks, whose valuations have risen in recent months.

“Some FPC members were concerned that the proposal could lead to an undesirable increase in market-based leverage, which could impact on the resilience of core UK markets,” a report by the committee said.

The FPC is now embarking on a review that will “determine whether the proposal will leave any financial stability gaps that need to be managed and whether this justifies further adjustments to the policy package”.

This review, which will be completed by the end of September, will influence the capital changes package submitted for consultation in early 2027.

Meanwhile, the FPC has raised concerns about advances in artificial intelligence, which are advancing much faster than some experts predicted. While edge AI systems have the ability to increase productivity, they have significantly increased cyber risks; This means that malicious actors can cause shocks and disruptions at lower costs and on a larger scale.

This could hit banks and systemically important financial firms, putting the broader system at risk.

“Recent rapid advances in edge AI capabilities have increased financial stability risks related to cyber and operational resilience,” the bank said.

The warning comes amid months of speculation and warnings about the impact of AI models like Anthropic’s Mythos; this model was only available to selected companies worldwide.