On 24 March 2025, the Bank of England (BoE) launched its 2025 Bank Capital Stress Test (the Stress Test), which seeks to assess the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices, higher global interest rates, and a stressed level of misconduct costs.

Background

The BoE published its updated approach to stress testing the UK banking system in December 2024, and that approach included carrying out the Stress Test every other year (starting in 2025). This exercise replaces the annual cyclical scenario under the previous approach, the last of which was carried out for 2022/23.

Key elements of the stress test

Key aspects of the Stress Test include:

  • The seven largest and most systemic UK banks and building societies will take part, in accordance with the criteria for participation set out in the BoE’s updated approach to stress testing.
  • Those banks and building societies will be tested against a severe but plausible scenario, which is intended to be a coherent tail risk scenario designed to be severe and broad enough to assess the resilience of the UK banks to a range of adverse shocks. 
  • The scenario used for the Stress Test will cover a 5-year horizon, starting at the end of December 2024. Banks will not be asked to submit full projections for a baseline scenario, but will instead be asked to submit projections based on their existing corporate plans in a small number of areas where it is deemed appropriate to ensure robust results.
  • The Stress Test is integrated with the BoE’s broader framework for assessing financial stability and safety and soundness, and has been designed drawing on insights from other stress tests it carries out.
  • The results of the Stress Test will be one input among a range of tools used to determine the size of capital buffers.

Guidance

The BoE has also published guidance on the 2025 Bank Capital Stress Test for participants. The guidance is intended to assist participating banks in conducting their own analysis for the Stress Test, and detailed guidance related the traded and pensions risk elements are set out in the annexes.

The guidance covers topics including:

  • The banks participating in the Stress Test.
  • The scope of consolidation.
  • Definitions of capital and leverage ratios.
  • Submission.
  • The publication of results.
  • Time horizon and reference date.
  • The macroeconomic scenario.
  • Modelling risks and income.
  • Management actions and mandatory distribution restrictions.
  • Other capital actions for banks.
  • Basis of Preparation requests sent to participating banks.
  • The qualitative review to be carried out during the Stress Test.

Next steps

The results of the Stress Test are due to be published in Q4 2025.