Financial stability

It’s our job to make sure the UK financial system is safe and sound

Our mission

We’re the central bank of the UK. It’s our job to make sure the UK has a stable financial system. A stable financial system is one that can provide crucial services to households and businesses in both good times and bad.

People use the financial system to pay, save, borrow or invest. They rely on its services every day. Our economy wouldn’t be able to work without it. You can read more in our guide on What is financial stability?

We work to maintain and improve the stability of the UK’s financial system in several ways. Two statutory bodies lead much of this work.

These are our:

We also have statutory responsibilities to:

  • supervise financial market infrastructures (FMIs), which are a vital part of the UK’s financial system and wider economy
  • act as the UK’s resolution authority so, if a bank fails, that happens in an orderly way and disruption of vital services is minimised

We set out our strategy for maintaining Financial Stability every three years.

Financial Stability Strategy

How we maintain financial stability

We work in several ways to identify and deal with risks from and to all parts of the financial system.

Countercyclical capital buffer (CCyB)

Since the 2008 global financial crisis, we have made UK banks and building societies increase the financial resources (capital) they have set aside to act as a shock absorber for bad times. The countercyclical capital buffer (CCyB) is one such tool which enables the FPC to adjust the resilience of the UK banking system to the changing risks it faces over time.

The FPC sets the level of the UK CCyB rate. If the Committee thinks risks are growing, it sets a higher UK CCyB rate. This means that banks are required to have an additional cushion of capital to absorb potential losses, enhancing their resilience and contributing to a stable financial system.

Then, if those risks materialise, the FPC can let banks use this extra capital they have set aside, which helps them keep lending to households and businesses even in bad times.

Stress testing

Each year we ‘stress test’ the UK’s largest banks, building societies and insurers to see if they are prepared for an economic crisis. Read more about our stress tests.

Limiting risky mortgages

The FPC uses its recommendation power to restrict the proportion of risky mortgages banks take on. This helps us to reduce the risks to the financial system from high levels of household debt, particularly if the economy suffers a downturn.

For example, we have limited the number of new mortgages that lenders can approve that are 4.5 times or more the size of a borrower’s income.

Resolution

The Bank of England is the UK’s resolution authority. If a bank fails, we make sure that happens in an orderly way. So disruption to any of its vital services is minimised. Read more about our work on resolution.

Supervising financial market infrastructures

Financial market infrastructures, such as payment settlement systems and central counterparties, play a key role in keeping the economy moving. The Bank of England is responsible for overseeing these important services. Read more about our work on supervising financial market infrastructures. The Bank of England also provides the infrastructure for resilient settlement of the most critical high-value sterling payments and key retail payment systems by enabling them to be settled resiliently and in central bank money through the Real Time Gross Settlement (RTGS) service. Read more about our payment and settlement systems.

Trade Repository Data collections

We use transaction level data to see what is happening in key financial markets. This helps us to meet our financial stability and monetary policy objectives. It also enables us to build on our understanding of how markets function and the way counterparties interact. Read more about the trade repository data collections.

Ensuring financial sector resilience

We also work with UK financial authorities – HM Treasury and the Financial Conduct Authority – to make sure the UK financial sector runs smoothly, efficiently and effectively. As part of this, the FPC works with other regulatory authorities to reduce risks from the non-bank financial sector. The Bank of England also stands ready to provide liquidity to eligible UK firms to reduce the cost of disruption to critical financial services, particularly during periods of heightened uncertainty or market dysfunction.

In 2023, the Bank launched the first system-wide exploratory scenario to improve understanding of the behaviours of banks and non-bank financial institutions in stress, and how these behaviours might interact to amplify shocks in UK financial markets that are core to UK financial stability.

Operational resilience

To support operational resilience (including resilience to cyber risk) we supervise individual firms and financial market infrastructures (FMIs). We also engage with other relevant UK and international authorities to drive collective action.

Read more on what we do to ensure the operational resilience of UK’s financial sector.

Facilitate sustainable innovation

The Bank of England is working to shape and facilitate the future of payments and settlements. The Bank of England also works to respond to the challenge of climate change, ensuring that the financial system is resilient to climate-related financial risks and supportive of an orderly economy-wide transition to net zero emissions.

This page was last updated 18 September 2023