The Bank of England has announced a significant shift in financial regulation, proposing to lower the amount of cash reserves major banks must hold as a safety net. This marks the first major review of these capital rules in a decade.
A Decade-Long Review Leads to Change
In a move signalling confidence in the sector's strength, the Bank's Financial Policy Committee (FPC) has decided to cut the benchmark for capital requirements. The proposed new level is 13% of risk-weighted assets, down from approximately 14%. This buffer is designed to protect banks from collapse by ensuring they have funds set aside against risky loans and investments.
The rules were originally forged in the aftermath of the 2008 global financial crisis to curb excessive risk-taking and fortify the banking system. The FPC stated that its judgement to now reduce the buffer is "consistent with the evolution of the financial system" since its last assessment ten years ago.
Why the Rules Are Being Loosened Now
The Bank's review found that UK banks are in a more robust position today. It concluded that lenders typically carry less risk on their balance sheets now than at any point since early 2016. Furthermore, banks have consistently operated with capital reserves above the mandatory minimum, giving them substantial headroom.
By providing more certainty over the required capital level, the FPC aims to give banks greater confidence. The explicit goal is to encourage them to use their capital to increase lending to UK households and businesses, thereby supporting economic activity.
Resilience for a Challenging Future
The Bank of England has stressed that this regulatory adjustment does not come at the cost of financial stability. The FPC affirmed that its updated requirements align with its view that the UK banking system remains resilient.
It believes the sector is sufficiently capitalised to continue supporting the economy even if economic conditions deteriorate substantially. The proposals, announced on Tuesday 2 December 2025, represent a carefully calibrated step in unwinding the strictest post-crisis safeguards, reflecting a transformed and stronger banking landscape.
