European financial regulators have unveiled separate initiatives aimed at strengthening the resilience of the banking sector, with the Bank of England proposing to ease capital requirements for major lenders while the European Central Bank ordered euro zone banks to prepare for emerging cyber threats powered by artificial intelligence.
The Bank of England’s Financial Policy Committee (FPC) announced plans on Tuesday to relax aspects of Britain’s capital framework, explaining that current rules have become more restrictive than intended and place some UK lenders at a competitive disadvantage compared with international peers.
The central bank said it will review how capital buffers are used so banks can draw on them more easily during periods of financial stress without automatically triggering restrictions on shareholder distributions such as dividends and share buybacks. It also proposed changes to the leverage ratio, which requires banks to maintain a minimum level of capital relative to their total assets regardless of the underlying risk profile.
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When the leverage ratio was introduced following the global financial crisis, it was designed as a safeguard alongside risk-weighted capital requirements. However, the Bank of England said the rule has become binding for three of Britain’s seven largest banks, effectively forcing them to hold more capital than many international competitors.
Under the proposals, the Bank would remove one component of the leverage buffer and increase the proportion of capital buffers that can be released during periods of stress. The central bank estimates the changes would reduce leverage requirements for the largest UK lenders by around 0.2 percentage points, lowering requirements from slightly above 3%.
“The framework would become more proportionate and more effective by being better targeted,” the Financial Policy Committee said.
The proposed reforms follow similar moves by U.S. regulators, who relaxed leverage requirements for major American banks in November. That decision intensified pressure on UK authorities to review whether domestic banks were being placed at a competitive disadvantage, particularly as lenders compete internationally for capital and lending opportunities.
The Bank of England also plans to improve what regulators refer to as “buffer usability” by giving banks greater flexibility to use capital reserves during periods of market stress.
The changes would primarily affect large domestically focused lenders such as Lloyds Banking Group, NatWest Group and Santander UK, while internationally active banks would remain subject to global Basel banking standards.
As part of the proposal, banks would be granted several years to rebuild depleted capital buffers after using them during periods of financial stress, reducing pressure to curtail lending when economic conditions deteriorate.
The Financial Policy Committee also said it supports moving eventually toward a single releasable capital buffer, although such a reform would require international agreement among banking regulators.
“The FPC will work with the Prudential Regulation Authority and international authorities to pursue broad reform of the capital buffer framework and move towards this vision,” the committee said.
ECB Warns Of AI-Powered Cyber Risks
While the Bank of England focused on capital regulation, the European Central Bank turned its attention to a rapidly emerging threat: artificial intelligence-enabled cyberattacks.
The ECB instructed euro zone banks to submit detailed plans by October 31 outlining how they will protect themselves against increasingly sophisticated cyber threats enhanced by advanced AI systems.
The central bank warned that recent advances in generative AI have significantly increased the capabilities available to malicious actors, creating new risks for financial institutions and payment systems.
“These developments have potentially profound implications for the confidentiality, integrity and resilience of banks’ information and communication technology systems,” the ECB said in a letter sent to bank chief executives.
Banks have been instructed to strengthen protection for internet-facing systems, improve monitoring capabilities, accelerate software vulnerability remediation, and enhance security for third-party technology providers and open-source software.
The ECB also urged lenders to modernize ageing technology infrastructure, strengthen cyber hygiene practices and improve crisis management, recovery planning and information-sharing procedures.
To allow banks to focus resources on the new requirements, the ECB said it would postpone a separate information technology survey and may adjust planned supervisory inspections.
The cyber warning was reinforced by the European Systemic Risk Board (ESRB), which published a separate assessment highlighting the potential systemic consequences of large-scale AI-enabled cyberattacks.
The ESRB warned that successful attacks could undermine public confidence in banks, disrupt payment systems, and potentially trigger runs on financial institutions or even sovereign markets perceived as less secure.
“The ESRB considers these developments to be a source of systemic risks to the financial system,” the organization said.
The report outlined several scenarios, including state-sponsored cyber espionage, coordinated attacks targeting payment, clearing and settlement infrastructure, and misinformation campaigns designed to amplify financial instability following cyber incidents.
It also warned that the financial sector’s growing reliance on common software providers and shared technology platforms could allow cyber incidents to spread rapidly across multiple institutions.