Shares in Lloyds Banking Group PLC (LSE:LLOY) and other big UK lenders moved lower after analysts said mooted reports that the government may introduce "interest on reserves" was a potential risk for the sector.
Analysts at Barclays and Citigroup commented following a Bloomberg article quoting Gerard Lyons, "external economic advisor" to Liz Truss, on the possibility of introducing reserve tiering.
The issue of "interest on reserves" has risen up the agenda and the new government is "aware" of the financial benefit from potentially introducing tiering, the report stated.
It was also stated "the fact they are aware does not mean they are going to make it policy".
Citi analysts said: "The article also quotes BoE Governor Bailey as stating the arrangement would effectively be a tax on the banks and is therefore a decision for the Treasury."
Barclays said it was "highly uncertain" that it would be implemented, but limiting interest paid on cash held at the BOE "would present risks" to the outlook for UK banks' net interest income.
"However, its impact depends on the exact implementation of any such policy and banks' ability to reinvest elsewhere. Such a policy may also carry a number of broader unintended consequences."