Bank of England Eases Bank Capital Requirements in Bid to Boost Growth

• Britain's Central Bank, the Bank of England (BoE), on Tuesday, December 2, 2025, cut the amount of capital it estimates lenders need to hold by 1 percentage point (pp). This marks the BoE’s first reduction to bank capital demands since the global financial crisis in a bid to boost lending and stimulate the economy.
• The BoE said its capital framework review showed that the benchmark for Tier 1 capital requirements for lenders, set at 14% since 2015, could be reduced by 1pp to 13%. The new level of 13% for UK lenders comprises an underlying optimal level of 11%, plus 2pps to account for outstanding gaps and shortcomings in the measurement of risk-weighted assets. The BoE's Financial Policy Committee (FPC) has been reviewing potential changes to the capital structure since July. Following the easing, banks should have "greater certainty and confidence" to lend to UK households and businesses, the BoE said.
• BoE Governor Andrew Bailey later said that the change in how much capital banks must hold to protect themselves against potential shocks reflected both "the evolution of the banking system and... (current) economic conditions". He told a press conference he was not worried that lower capital requirements would help sow the seeds of the next financial crisis.
• Meanwhile, banking executives and investors had expected some sort of easing in recent weeks after earlier signals from central bank officials and as rival supervisors, including in the United States, prepare to soften their rules. Analysts described the BoE changes as important but measured. In its half-yearly Financial Stability Report, the BoE also noted that it would launch a review on enhancing the usability of buffers and on the implementation of the leverage ratio, initiatives that could further ease requirements for lenders.
• Banking regulators worldwide raised capital requirements in the wake of the 2008 global financial crisis to ensure the system had better buffers to withstand liquidity crises, but industry bosses have argued in recent years that such reforms have served their purpose. The BoE said its change on the estimate for bank capital reflected an updated assessment of the benefits of capital helping banks withstand crises, against the drawback of higher capital costs weighing on growth. The Trump administration is expected to ease capital rules for the U.S.'s biggest banks, while the European Union is working on plans to simplify its prudential framework.

(Source: Reuters)