Core Viewpoint - The UK Finance Association urges the Bank of England to adopt a bold and strategic approach in its upcoming comprehensive review of bank capital, as concerns grow that a proposed package may not meet investor expectations [1][2]. Group 1: Capital Requirements - The UK Finance Association highlights that current capital requirements are misaligned with international banking peers, resulting in the highest nominal capital requirements among G7 countries [1]. - The association recommends reducing the "rainy day" buffer capital from 2% to 1% or even 0%, and revisiting capital buffer requirements for banks not classified as globally systemically important [2][3]. Group 2: Economic Impact - The proposed adjustments to capital requirements are expected to free up more funds within the banking system to support UK businesses and households, aligning with the government's Modern Industrial Strategy [3]. - The UK Finance Association emphasizes that a thinner buffer during normal economic conditions would allow banks to allocate more capital to the real economy rather than holding it in reserve for potential downturns [3]. Group 3: Market Reactions - Analysts from Jefferies note that the UK financial system may soon recalibrate its view on the necessary Tier 1 capital levels, which could significantly boost shareholder distributions and lower equity costs for banks [2]. - The FTSE 350 Banks Index has risen by 45% this year, driven by optimistic expectations of regulatory easing from the Bank of England [5][6]. Group 4: Cautionary Notes - Despite calls for capital level adjustments, the UK Finance Association stresses that it does not seek to lower capital levels to a point that would threaten financial stability, akin to the 2008 financial crisis [4]. - Some banking executives caution that investors with overly high expectations for the review may face disappointment, as the Bank of England remains committed to high capital standards [6].