Shares in Barclays -- the bank that analysts said was most at risk from tough new rules -- jumped 8 percent on the news, and shares in other lenders also rose.

The new leverage ratio -- the minimum amount of capital banks must hold relative to their loans -- is part of global reforms introduced after the 2007-09 financial crisis to reduce the chances of banks needing public bailouts.

Britain's central bank said the ratio could rise to up to 4.95 percent from 2019, from 3 percent now.

That would mean banks have to hold 1 pound of capital for every 20 pounds they lend, compared to 1 pound for every 33 pounds under current leverage rules.

"The (BoE's Financial Policy) Committee believes that its proposals for the design and calibration of the framework will lead to prudent and efficient leverage ratio requirements," Governor Mark Carney said in a letter to finance minister George Osborne.

The ratio requirement will be based on three things: a minimum level of 3 percent, a supplementary buffer for "systemically important" banks, and an additional "countercyclical buffer" that would be imposed when the economy is strong.

Although that could see the ratio set at 4.95 percent, it is likely to be closer to 4 percent for most banks, and lower for building societies -- customer-owned lenders primarily dedicated to issuing home loans.

Banking sources had expected the ratio to be increased to between 4 percent and 5 percent, which, analysts said, banks could adapt to as long as they had several years to reach it -- as they will under the proposed reforms.

"It's a little complicated but I'd expect the banks will be pleasantly surprised,” said Allison Breault, a lawyer with Cleary Gottlieb Steen & Hamilton, based in Brussels.

NO DRAMATIC CHANGES

"There was an expectation the ratio would be 4 percent or more, so I don't think most banks will need to make dramatic changes as a result of these new requirements," Breault said.

The BoE's proposal is one in a series of steps since the financial crisis aimed at making banks protect themselves better against future risks and avoiding a repeat of the 66 billion pound ($105 billion) taxpayer bailout of Royal Bank of Scotland and Lloyds.

Britain is going further than a plans by global regulators to set a 3 percent minimum leverage ratio, but not as far as U.S. regulators, who may lift it to 5 percent or more.

Banks have argued that setting too tough a level would force them to hold excess capital that would reduce profits, push up the cost of lending and cut the amount of credit available to home-buyers and companies.

The BoE says safer banks will find it cheaper to raise funds, and that large banks that operate with dangerously low levels of capital effectively receive a public subsidy because investors think taxpayers will step in to stop them failing.

Under the BoE's rules, four banks considered systemically important, or so big that their failure could trigger a financial crisis, will need to hold extra capital by 2016.

Based on assessments set by the Financial Stability Board -- an international body based in Basel, Switzerland that is currently chaired by Carney -- HSBC would need a leverage ratio of 3.9 percent, Barclays would need 3.7 percent, RBS would need 3.5 percent and Standard Chartered would need 3.4 percent.

The Bank of England will review the strength of the economy every quarter to see whether it needs to impose a countercyclical buffer which could add as much as 0.9 percentage point to the leverage ratio. Banks would have two years to meet any change.

The BoE's proposals are now up for review by Britain's finance ministry, which will consult with the banks affected.

Analysts said all of the listed UK banks already meet the requirement, apart from Barclays, which should be able to do so within six months.

Barclays' leverage ratio was 3.5 percent at the end of September, and it said it was "very confident" of being able to meet the rules laid out.

Barclays shares were up 8.3 percent at 241 pence by 1550 pm London time, their highest level for four months. RBS was up 5.8 percent, HSBC rose 1.7 percent and Lloyds was up 2.4 percent.

(1 US dollar = 0.6260 British pound)

(Additional reporting by Matt Scuffham; Editing by Robin Pomeroy)

By David Milliken and Steve Slater