MNI BRIEF: Gilts Should Stay In Leverage Ratio - BOE Woods

Taking higher-rated sovereign bonds out of banks' leverage ratio would bring "real risk," Bank of England Deputy Governor Sam Woods said Wednesday.

"My view is that this would be a profound – and highly risky – change," he said in the annual Lord Mayor's Mansion House speech. 

It would cause a "very large increase" in bank leverage, would largely remove sovereign risk from the bank capital framework, and would expose banks to increased interest rate risk, he said.

The Bank published a discussion paper last month exploring a range of potential reforms to the gilt repo market, which deferred any change to the leverage ratio until after consideration of "the wider microprudential and financial stability implications associated with resilient dealer balance sheets."