BoE's FPC and UK PRA propose to modernise the bank capital framework

The Bank of England's Financial Policy Committee (FPC) has published a financial stability in focus report proposing reforms to modernise the UK bank capital framework to make it simpler, more effective, proportionate and better calibrated to current risks while maintaining financial resilience. The package aims to address unintended consequences in the leverage framework and strengthen the releasability and usability of buffers.

The FPC reaffirms its assessment from its December 2025 report that an appropriate benchmark for system wide Tier 1 capital requirements remains around 13% of risk weighted assets (equivalent to a Common Equity Tier 1 ratio of around 11%). Since December, the FPC, working with the UK Prudential Regulation Authority (PRA), has progressed its analysis of buffer usability and the leverage ratio, and is announcing a package of reforms informed by the feedback it has received. In this report, the FPC sets out its longer term vision for a simpler capital buffer framework centred on a single buffer that is releasable in stress and can be used without automatic distribution restrictions. As an initial step, the FPC welcomes the PRA statement with its decision to make the other systemically important institution buffers releasable in the event of systemic stress. We cover the PRA's statement in a separate update.

In addition, the FPC and PRA intend to consult on reforms to the leverage ratio framework, including: (i) removing the countercyclical leverage buffer; (ii) increasing the additional leverage ratio buffer for firms with systemic buffers to 50% of corresponding risk weighted systemic buffers in line with international standards; and (iii) reducing the minimum leverage ratio requirement from 3.25% to 3%, and applying a simple general leverage ratio buffer set at 25 basis points for firms subject to leverage requirements. The FPC and PRA will further assess the impact of these proposals on financial stability and market functioning at the Q3 FPC meeting. Separately, the FPC expects to update its assessment of the interaction of capital requirements related to domestic exposures in its Q4 2026 financial stability report.

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