The Bank of England (BoE) is putting the UK banking system to the test, launching its latest Bank Capital Stress Test to measure resilience under extreme economic pressure. Banks must brace for deep recessions, withstand plummeting asset prices, navigate soaring global interest rates, and manage rising misconduct costs—all to prove they can weather a financial storm. The test began on 24 March.
This marks the first stress test under the BoE’s updated framework, announced in December 2024. Moving away from the annual cyclical scenario approach, the new methodology introduces a biennial test, starting in 2025. The last stress test under the previous regime covered the 2022/23 cycle.
Scope and methodology
The seven largest and most systemically important UK banks and building societies will participate, facing a severe but plausible scenario over a five-year horizon from the end of December 2024. Unlike previous tests, participants will not submit full baseline projections but will provide limited submissions based on their existing corporate plans in select areas.
The exercise is embedded within the BoE’s broader financial stability assessment framework and incorporates lessons from previous stress tests. The results will contribute to determining capital buffer requirements, alongside other regulatory tools.
Guidance
To support participating banks, the BoE has issued detailed guidance, covering key areas such as capital and leverage ratio definitions, modelling of risks and income, and mandatory distribution restrictions. The guidance also includes specific instructions for addressing traded and pensions risk elements. A qualitative review will be conducted as part of the assessment.
The findings from the 2025 Bank Capital Stress Test are expected to be published in Q4 2025.
