As Britain grapples with elevated public debt and volatile global markets, the Bank of England is preparing to weigh in on potential changes to its leverage rules that could significantly lower government borrowing costs — but at the potential expense of financial system resilience, according to industry analysts and former regulators.

The central bank is expected to provide an update on its review of leverage requirements and related buffers in its half-yearly Financial Stability Report, due for release at 0930 GMT on Tuesday. The review follows a relaxation of the Bank’s main capital requirement in December and comes amid looser U.S. leverage rules introduced in November, which have intensified competitive pressures on British lenders.

Barclays has been particularly vocal, urging the Bank to exclude British government bonds, known as gilts, from the leverage ratio calculation that requires banks to hold capital equivalent to slightly over 3.25% of their assets. Such a change could encourage UK banks to hold up to £150 billion more gilts, reduce average yields by around 0.2 percentage points, and save the government approximately £2.5 billion annually in interest payments at a time when public finances remain under strain.

The bank specified that any exemption should apply only to “unencumbered” gilts not already pledged as collateral elsewhere.

Lloyds offered a more conservative assessment, suggesting the change might generate around £30 billion in additional gilt demand but could still deliver at least £1 billion in annual interest savings — nearly enough to offset a recent defense funding shortfall.

“Supporting the bid for gilt issuance has become a primary concern for the Treasury. A regulatory change that mechanically raises bank gilt demand is politically attractive,” Lloyds fixed income analysts Karim Henide and Sam Hill wrote.

Britain’s government has grown increasingly dependent on foreign investors, including hedge funds, to finance its borrowing — a dynamic that has contributed to higher yields. Domestic banks currently hold only about half as much government debt as their eurozone counterparts.

Caution from Former Regulators

The potential shift has drawn sharp warnings from some former Bank officials. Sam Woods, who served as deputy governor for prudential regulation until last week, told financiers in October that exempting all gilts from leverage rules “would be a profound, and highly risky, change.” Woods has since been succeeded by Katharine Braddick, formerly a senior executive at Barclays.

David Aikman, who helped shape the original rules at the Bank and now directs the National Institute of Economic and Social Research, argued that the leverage ratio was never designed to serve as the primary brake on bank lending. He noted that the fact that other risk-weighted capital rules were no longer constraining banks suggested deeper issues, possibly related to how risks from lending to hedge funds and non-bank financial institutions are assessed.

“The answer isn’t to take the batteries out of the fire alarm, but to investigate what’s going on, figure out which risk weights have fallen too far and recalibrate those risk weights,” Aikman told Reuters.

He cautioned that gilts are not risk-free assets and could still lose value. The euro zone debt crisis of the early 2010s demonstrated the dangers of too close an entanglement between bank health and sovereign finances, he added.

Aikman suggested the Bank was more likely to eliminate a UK-specific cyclical component of the leverage ratio rather than implement a broad gilt exemption.

The review also encompasses other areas of potential risk. The Bank is conducting its first stress test of private markets’ resilience to a major geopolitical shock. Additionally, it is examining the gilt repo market, which had £74 billion in aggregate net borrowing in March.

In September, the Bank proposed minimum risk margins or “haircuts” for non-centrally cleared gilt repo transactions, with a full update expected in early 2027. Deputy Governor Sarah Breeden told an industry conference in May that “doing nothing is not an option” regarding the gilt repo market. While the market enhances day-to-day liquidity in government debt, the Bank has warned it is dominated by a small number of hedge funds pursuing similar strategies, creating potential difficulties in trading gilts during periods of stress.

The Trade-Off Between Fiscal Relief and Stability

The proposals come against a backdrop of stretched public finances and elevated borrowing needs. Any reduction in gilt yields through increased bank participation could provide meaningful fiscal breathing room. However, the trade-off involves fundamental questions about the appropriate level of financial system safeguards and the role of banks in holding sovereign debt.

The Bank’s review is more like a broader reassessment of regulatory frameworks in response to changing market conditions and international developments.

However, Tuesday’s Financial Stability Report will offer the clearest indication yet of the central bank’s thinking on these critical issues. The outcome is expected to have lasting implications for Britain’s bond market, banking sector, and overall economic strategy in an uncertain global environment.

Hong Kong’s equity market is preparing for an unprecedented wave of lock-up expirations that could unleash billions of dollars’ worth of shares onto the market, raising concerns about increased selling pressure at a time when investor sentiment toward the city’s stock market remains fragile.

Some of the best-performing initial public offerings (IPOs) of the past year will begin releasing previously restricted shares this week, giving cornerstone investors and early shareholders their first opportunity to cash out after months of extraordinary gains.

Market participants say the timing could create a significant overhang for Hong Kong equities, particularly as investors grapple with slowing momentum in the city’s broader stock market.

Chinese artificial intelligence developer Knowledge Atlas Technology will be among the first major companies to face lock-up expirations, with 25.6 million shares, representing nearly 6% of its outstanding stock, becoming eligible for trading on Wednesday following the end of a six-month cornerstone investor restriction.

The stock has been one of Hong Kong’s standout performers, soaring more than 1,200% since its market debut, creating strong incentives for early investors to realize profits.

Other high-profile technology listings are also approaching similar milestones.

AI startup MiniMax will see shares equivalent to approximately 45% of its outstanding stock become tradable, while Shanghai Iluvatar CoreX Semiconductor, another company benefiting from investor enthusiasm surrounding artificial intelligence, will have about 4.3% of its shares unlocked.

In total, six recently listed companies are scheduled to experience lock-up expirations this week.

The release of such a large volume of previously restricted shares comes after a remarkable period for Hong Kong’s IPO market.

According to EY, companies that listed during the first half of 2026 generated an average first-day gain of 61%, reflecting strong investor appetite for new listings, particularly those linked to artificial intelligence, semiconductors and advanced technology.

However, those impressive IPO returns stand in sharp contrast to the performance of Hong Kong’s broader equity market. The benchmark Hang Seng Index has declined 8.9% this year, highlighting the divergence between enthusiasm for select new technology listings and persistent weakness across the wider market.

Analysts warn that the combination of substantial gains and expiring lock-up periods could encourage widespread profit-taking.

Cornerstone investors, institutional shareholders, and early backers who were prohibited from selling immediately after the IPO may now choose to lock in returns, increasing the supply of shares available to the market.

Morgan Stanley believes the pressure could intensify over the coming months. The investment bank expects secondary selling activity to become particularly concentrated in July and September, describing lock-up expirations as one of the principal near-term risks facing Hong Kong equities.

“These events can create liquidity headwinds even when fundamentals remain intact,” Morgan Stanley analysts wrote, adding that the expected increase in secondary selling forms part of the bank’s cautious outlook on the Hong Kong market.

Goldman Sachs estimates the scale of the challenge could be unprecedented. The investment bank projects that approximately $274 billion worth of previously locked-up shares will become eligible for trading across Hong Kong over the next 12 months, representing the largest volume of lock-up expirations the market has ever experienced.

Historically, such events have often weighed on share prices.

Goldman Sachs found that stocks typically decline between 4% and 7% during the three to six months following major lock-up expirations, as additional supply enters the market and investors take profits. The impact could be particularly pronounced among artificial intelligence companies, many of which have enjoyed spectacular gains fueled by global enthusiasm for AI-related investments.

Chinese AI developers and semiconductor companies have attracted substantial capital this year as investors have sought exposure to Beijing’s efforts to strengthen domestic technology capabilities while benefiting from the global AI infrastructure boom.

Whether those elevated valuations can withstand a surge in secondary selling remains uncertain.

However, beyond the immediate market impact, the record volume of expiring lock-ups reflects Hong Kong’s resurgence as a preferred listing destination for mainland Chinese technology companies.

After several years of subdued fundraising activity, improving regulatory conditions, renewed investor appetite, and robust demand for AI-related assets have revived the city’s IPO market. However, analysts caution that a successful primary market does not automatically translate into sustained secondary market performance.