The UK Financial Services Authority (FSA) has relaxed its capital and liquidity requirements for the banks, marking a step back on Basel III capital regulations and to stimulate lending.

The capital rule modification intends to enable banks to boost their capital and use their buffers for enhanced lending.

Britain’s financial regulator said that the banks do not require piling additional capital, which qualify for the "funding for lending" scheme launched in July this year.

The watchdog also slashed the rule of maintaining a core ratio equal to 10% of their assets; instead has allowed holding a fixed amount of capital.

The FSA said that the banks were already aware of the changes that were set forth in the Bank of England’s Financial Policy Committee in September this year.

The Basel III capital regulation is expected to come into force fully from 2019, pursuant to which the banks will have to deposit at least 10.5% in capital and buffers to total risk-weighted assets.