Anna 
The Bank of England (BoE) has unveiled a series of proposed reforms aimed at simplifying and enhancing the capital framework for UK banks. These changes are designed to make the banking system more resilient while supporting economic growth. The proposals come after extensive feedback from stakeholders and a detailed review by the Financial Policy Committee (FPC) in December 2025.
One key area of reform focuses on improving the usability of capital buffers during financial stress. Currently, banks often hesitate to use these buffers, which are intended to absorb losses and maintain lending. To address this, the BoE plans to move towards a simpler structure centered on a single releasable buffer. An initial step will be to make the Other Systemically Important Institution (O-SII) buffer releasable in times of systemic stress. This change aims to reduce banks’ incentives to deleverage during difficult periods and help maintain lending capacity.
Another major reform under consideration is the adjustment of the leverage ratio framework. The BoE proposes removing the countercyclical leverage buffer (CCLB) due to its misalignment with the risks it was meant to address. Additionally, the calibration of the Additional Leverage Ratio Buffer (ALRB) for systemically important firms will be aligned with international standards, set at 50% of risk-weighted systemic buffers. The leverage ratio Tier 1 minimum requirement would also be lowered from 3.25% to 3%, with a new general leverage ratio buffer introduced at 25 basis points. These changes aim to make leverage requirements more proportionate and effective.
Alongside these regulatory updates, the BoE is conducting its first-ever stress test of private markets, involving major alternative asset managers such as Apollo Global Management and Goldman Sachs Asset Management. The exercise includes data on investments in over 500 UK companies valued at more than £230 billion in revenue. The stress test simulates a severe global recession scenario lasting five years, with a projected 4% contraction in the UK economy and interest rates rising to 7%. This effort is part of the Bank’s broader commitment to understanding vulnerabilities in private credit and equity markets.
The Bank has also raised concerns about UK banks considering unfunded Significant Risk Transfers (SRTs), a riskier form of credit hedge that relies on guarantees rather than collateralized investor funds. While common in the European Union, these instruments have not yet gained popularity in the UK, prompting caution from regulators due to their potential unreliability during times of financial stress.
The BoE plans to consult further on these proposed changes throughout the second half of 2026, including detailed reviews of their impact on financial stability and market functioning. The Financial Policy Committee will evaluate whether any gaps remain in the framework after implementation and decide if additional adjustments are necessary. These reforms reflect the BoE’s ongoing commitment to ensuring that UK banks remain robust and capable of supporting the economy through future challenges.
