The Bank of England’s Financial Policy Committee (FPC) has reduced its benchmark estimate for the level of Tier 1 capital the UK banking system should hold in normal times to around 13% of risk-weighted assets, down from the previous benchmark of 14%.

The FPC says this reflects structural changes in the financial system, lower average risk weights, and forthcoming improvements in risk measurement as Basel 3.1 is implemented.The revised benchmark does not change minimum regulatory capital requirements.

Instead, it provides a clearer view of the level of capital the FPC considers sufficient for banks to support lending through periods of stress. The Committee repeats that the capital framework must remain usable, and that banks should feel able to draw on buffers when conditions deteriorate without triggering adverse market reactions.Stress test results show aggregate CET1 ratios falling from 14.5% to a low point of 11% in a severe scenario, while still staying above the sum of regulatory minima and systemic buffers.

No bank is required to strengthen its capital position.The FPC notes that global financial stability risks increased through 2025. Asset valuations remain stretched in several markets, particularly in technology and AI-linked equities, and geopolitical and sovereign debt pressures continue to weigh on the outlook.

The Report also refers to two recent corporate defaults in the United States — First Brands Group and Tricolor — which highlighted weaknesses in segments of the risky credit market, including high leverage, opaque structures, and possible misrepresentation of collateral. While market reactions remained limited, the FPC warns that similar failures could test underwriting standards and expose interconnections across financial institutions.

Despite the more difficult external environment, the FPC judges that UK households, corporates, and banks remain resilient in aggregate. Indebtedness levels are well below pre-pandemic and pre-global financial crisis peaks, and banks maintain strong liquidity and asset-quality metrics.

The Committee emphasises that maintaining resilience is essential to supporting long-term growth, particularly as firms face higher refinancing costs, uneven credit conditions, and ongoing structural shifts in market-based finance.