On 7 July 2026, the Bank of England (BoE) published its latest Financial Stability in Focus (FSiF) setting out the FPC’s view on specific topics related to financial stability.
Background
In December 2025, the FPC revisited its assessment of appropriate capital requirements for the UK banking system. The FPC welcomed feedback received from a broad group of stakeholders on the issues covered in its December 2025 FSiF. This included feedback on the overall level of capital requirements, international comparisons, the functioning of the capital buffer framework and the leverage ratio, and capital requirements related to domestic exposures.
Summary
The FPC, working with the Prudential Regulation Authority (PRA), is intending to modernise the bank capital framework. The FPC is announcing a package of proposed changes that are intended to help ensure the framework is simpler, more effective, more proportionate and better calibrated to the risks in today’s financial system, while also ensuring that the UK banking system remains resilient and able to support the economy.
- Further enhancing the usability and releasability of regulatory capital buffers: The FPC and PRA are seeking to make the UK bank capital framework simpler by improving the usability of capital buffers during periods of stress as they consider that while capital buffers are intended to absorb losses and support continued lending banks can be reluctant to use them in practice. To address this, they support moving towards a simpler framework centred on a single releasable buffer. As an initial step, the PRA intends to make the other systemically important institution (O-SII) buffer releasable during systemic stress, reducing incentives for banks to deleverage. The PRA will consult on its approach to setting O-SII buffers in 2026 H2. The PRA will also consider measures to improve clarity around buffer use and strengthen market understanding of the framework.
- The implementation of the leverage ratio in the UK: In its December FSiF, the FPC committed to review the implementation of the leverage ratio in the UK to ensure that it functions as intended, prioritising reviewing the UK’s approach to regulatory buffers in leverage requirements. To address these issues, the FPC and PRA intend to consult on a package of measures to make the leverage ratio framework more proportionate and more effective by being better targeted. This package would:
- Remove the countercyclical leverage buffer (CCLB) from banks’ leverage requirements to address the unintended consequence of how it has been implemented and reflecting the fact that its calibration is not closely linked to the systemically important financial market activity for which the leverage ratio is a key prudential constraint.
- Move the calibration of the additional leverage ratio buffer (ALRB) for firms with systemic buffers into line with international standards – to 50% of risk-weighted systemic buffers. Like its risk-weighted counterpart, the ALRB for domestically systemic firms would be releasable in a stress.
Next steps
The FPC sets out that it will therefore work, alongside the PRA, to identify whether the proposed package of changes to the leverage framework would leave any financial stability gaps that would need to be managed and whether that might justify further adjustments to the policy package. This analysis, which will take into account the FPC’s work on gilt repo market resilience and impacts of the proposal on market functioning, will be completed by, and considered at, the Q3 FPC meeting to allow any potential consultation on this element alongside the rest of the proposal.