Top British lenders are pushing back against a regulatory initiative from the Bank of England that aims to bolster lending by lowering capital buffers, highlighting tensions between financial stability and credit growth ambitions in the UK banking sector.
The Bank of England has been under pressure to ease post-crisis capital requirements, including exploring reductions in regulatory buffers that act as extra capital cushions above minimum thresholds. This follows its December 2025 move to lower the benchmark Tier 1 capital requirement from 14 per cent to 13 per cent of risk-weighted assets, its first reduction since the global financial crisis, designed to support credit availability and potentially free up capital for lending and shareholder payouts.
However, major UK banks are resisting further efforts to scale back capital levels. According to people familiar with the matter, lenders are wary of eroding the strong capital positions they have maintained, reflecting concerns that reduced buffers could weaken the sector’s ability to absorb future losses even as they seek to expand lending to households and businesses.
This resistance occurs against a backdrop in which British banks have demonstrated resilience in recent stress tests conducted by the Bank of England. In the latest exercises, the country’s seven largest lenders, including Barclays, HSBC, Lloyds and NatWest Group, comfortably passed simulations of severe economic shocks, reinforcing confidence in current capital cushions. The Bank’s Financial Policy Committee continues to emphasise financial stability while balancing the need to support economic growth.
The broader regulatory debate also intersects with industry calls to simplify and streamline banking rules more generally. Senior executives across UK and European banks have publicly urged regulators to ease complex capital frameworks that they argue constrain credit deployment and competitiveness.
As the Bank of England calibrates its capital framework, banks’ reluctance to embrace deeper buffer reductions underscores the ongoing challenge of reconciling robust financial safeguards with ambitions to stimulate lending and economic activity.
