In a landmark shift for the UK's financial sector, the Bank of England has proposed its most significant regulatory overhaul since the 2008 financial crisis, targeting the nation's seven biggest lenders.
What the New Bank of England Rules Entail
The central bank's plan, announced on Tuesday, 2nd December 2025, focuses on loosening capital requirements for the first time in over 15 years. The key change involves lowering the capital requirements related to risk-weighted assets by one percentage point, bringing the target to approximately 13%.
This adjustment directly reduces the amount of capital these major institutions must hold in reserve, thereby freeing up resources. The move is designed to affect Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander UK, and Standard Chartered.
Stress Tests and Rationale for the Change
The proposal follows a recent Bank of England stress test which concluded that all seven banks possess sufficient strength to continue lending through a "severe but plausible" economic downturn. This finding provided the confidence needed to advance the regulatory shift.
The Bank's Financial Policy Committee stated that the new framework is "consistent with its view that the banking sector can support long-term growth in the real economy in both current and adverse economic environments." It further argued that banks should have greater certainty and confidence in using their capital resources to lend to UK households and businesses.
Political and Economic Reactions
The move has received notable political backing. Labour Chancellor Rachel Reeves wrote to Bank of England Governor Andrew Bailey to praise the initiative. In her letter, she stated it should "ensure the UK’s capital framework strikes the optimal balance to deliver resilience, growth and competitiveness."
Reeves also urged that subsequent steps should identify actions to "support the supply of long-term capital for productive investment, particularly for high growth-potential firms seeking to scale up."
This regulatory shift arrives just weeks after the Bank's Financial Policy Committee warned of a growing risk of a "sudden correction" in global markets, citing concerns over soaring valuations of leading AI-focused technology companies. The committee noted that "equity market valuations appear stretched," leaving markets exposed if optimism around AI's impact wanes.
