The Chancellor has met with the Bank of England governor and top bank bosses after proposed changes to the UK banking system were watered down following pressure from the City.

Rachel Reeves discussed new rules for banks and building societies that she said will bring “certainty” and “strengthen the resilience of our banking system”.

The Bank’s regulatory arm announced on Thursday that it had made significant tweaks to rules it had previously proposed after getting feedback from the industry.

The rules relate to how much capital UK banks must hold to ensure they are well equipped to handle any future crises, known as their capital requirements.

These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK

The banking system, known as Basel III, was drawn up after the 2008 financial crisis which saw major banks bailed out by the Government because they did not hold enough cash to absorb losses.

Ms Reeves said: “Today marks the end of a long road after the 2008 financial crisis.

“Britain’s banks have a vital role to play in helping businesses to grow, getting infrastructure built and supporting ordinary people’s finances.

“These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK.”

The Bank’s Prudential Regulation Authority (PRA) said it wanted to strike the right balance so that banks were not stifled by rules that would make it harder, and therefore more expensive, for people and businesses to borrow money.

But at the same time, it said they must hold enough capital to absorb potential losses and weather a crisis.

The PRA said the new requirements for major UK banking firms will be “virtually unchanged” by the package of reforms, with an expected increase by less than 1% from 2030.

Previously, its proposed changes were estimated to have led to a 3% increase.

Another significant change from the original proposals include lower capital requirements for lending to small and medium-sized businesses, and for infrastructure projects.

This means it will not become more difficult for banks to lend to growing firms and to fund big projects, something which had been raised as a concern by the City.

A spokesman for NatWest said it welcomed the “clarity provided” by the reforms, “which helps to address a number of potential consequences that could, in particular, have had implications for lending to SMEs and infrastructure”.

The rules, which are yet to be finalised, will come into force at the start of 2026.

Other countries are drawing up their own reforms to the rules, with the US central bank also outlining plans to water down earlier proposals.