The Bank’s Financial Stability Strategy

Organisation of responsibilities

The Bank is responsible for delivering its financial stability objective in line with this strategy.

The Bank also has three statutory committees with responsibilities to make specific contributions to UK financial stability:

1. The Financial Policy Committee (FPC) is responsible for identifying, monitoring, and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC sets macroprudential policy, relating to the stability of the financial system as a whole. In meeting this responsibility, it maintains an overview of the UK’s microprudential regulatory and supervisory frameworks relating to individual financial institutions and any financial stability issues arising in relation to these. Subject to achieving that, the FPC has a secondary objective to support the economic policy of the Government. It has specific powers of Direction over two microprudential authorities, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), and the ability to make ‘comply or explain’ Recommendations to both authorities; it has the ability to make Recommendations to any other person, including relevant authorities on action necessary to conserve financial stability.
2. The PRA is the microprudential regulator of banks, building societies, credit unions, designated investment firms and insurers. It must take into account financial stability considerations when advancing its general objective to promote the safety and soundness of the firms it regulates. The PRA also has an objective to protect insurance policyholders, a secondary objective to facilitate effective competition, and a secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.^{footnote [6]} The PRA’s most important decisions are taken by the Prudential Regulation Committee (PRC) of the Bank. The latest strategy for delivering its statutory objectives was set by the PRC in consultation with the Bank’s Court of Directors and published in the PRA Business Plan 2025/26.^{footnote [7]}
3. The Bank is the regulator of the UK's financial market infrastructure (FMI). It exercises its functions with a view to contributing to the Bank’s financial stability objective and, subject to that, facilitating innovation in the provision of these FMI services.^{footnote [8]} The Bank’s most important FMI decisions are taken by the Financial Market Infrastructure Committee (FMIC).^{footnote [9]} To deliver against its objectives the FMIC has established a number of business aims as set out in the Bank’s Annual Report on FMI supervision.^{footnote [10]} The Bank’s strategy with respect to FMI supervision is set out in an approach document.^{footnote [11]}

In addition, the Bank has statutory responsibilities in relation to resolution. It is the resolution authority for the UK and has published its approach to resolution, and to how it assesses UK banks’ resolvability.^{footnote [12]}

The PRA and Bank also have rule-making powers, direction powers and other powers in relation to critical third parties (CTPs). CTPs may be designated by HMT based on an assessment of potential threats to financial stability.

The Bank uses its balance sheet, operations, the provision of critical infrastructure (including the RTGS service), and the production and distribution of banknotes to support financial stability.

The Monetary Policy Committee (MPC) has responsibility for formulating monetary policy with an objective to maintain price stability. Price stability reduces the scale of economic fluctuations over time, and, so, supports financial stability.

The Bank also relies on other UK authorities to meet their responsibilities. For example, HMT determines the regulatory framework for the UK financial system and is able to specify which activities should be regulated and which activities should be prudentially regulated by the PRA. The FCA is the conduct regulator for financial companies and financial markets in the UK and the prudential regulator for some of those firms, including asset managers, consumer credit providers and insurance brokers. The Pensions Regulator is responsible for regulating and overseeing workplace pensions, ensuring employers meet their legal obligations, and taking action to protect members' interests.

A Memorandum of Understanding outlines how HMT, the Bank and the PRA will co-ordinate with each other in respect of financial crisis management, including the run-up to and during the resolution of a firm. As resolution authority, the Bank decides which resolution tools to use and carries out the resolution, except for temporary public ownership and public equity support, for which HMT is responsible. HMT must also authorise the use of any resolution power that would have implications for public funds.^{footnote [13]}

Guiding principles for the Bank’s Financial Stability Strategy

A stable financial system is one that has sufficient resilience to be able to facilitate and supply vital services by financial institutions, markets and market infrastructure to households and businesses, in a manner that absorbs rather than amplifies shocks. Those vital services are:

• the provision of payment and settlement services
• intermediating between savers and borrowers, and channelling savings into investment
• insuring against and dispersing risk

Financial stability is a prerequisite for sustainable economic growth over the medium to long-term. A stable and predictable economic environment directly supports growth as well as the Bank’s policy committees’ other secondary objectives. Likewise, sustainable growth supports financial stability by making economic actors more resilient – creating a virtuous cycle between growth and the Bank’s other objectives.

The Bank protects and enhances the stability of the financial system by:

• ensuring the financial system remains resilient
• promoting the safety, soundness and resolvability of firms and the resilience and reliability of financial market infrastructure
• providing secure and reliable payments infrastructure, market operations, banking services and banknotes

In doing so, the Bank’s approach reflects the fact that:

• the UK is a leading international financial centre; The UK’s financial services sector and the wider UK economy benefit from that openness and competitiveness. But it also means that the UK is exposed to shocks from abroad. Actions of UK authorities to set standards, and its leadership in setting global standards, contribute to international as well as domestic financial stability. The UK’s institutions and markets must be a source of strength for the global system and able to be relied upon by others. The IMF considers that the stability of the UK financial system is therefore a global public good;^{footnote [14]}
• financial stability is not about the elimination of all risks or minimising volatility in the financial system. It is about identifying, monitoring and taking action to remove or reduce systemic risks – those that could severely impair the supply of the financial system’s vital services;
• financial crises have material scarring impacts on the economy. The costs of financial instability mean that robust prudential standards of regulation – domestically and internationally – are vital to support sustainable growth in the UK over the cycle; and that
• the necessary resilience must be delivered efficiently, so as not to hamper the ability of the system to serve the real economy. Prudential regulation should be efficient, proportionate and effective to ultimately benefit the overall economy. Economic stability is better served in the long term by building resilience in advance, in normal times, and by having the right tools to step in if shocks happen.

The Bank’s approach aims to be in step with the changing needs of the economy, and the changing financial system. It therefore supports improvements to the provision of financial services to the economy by facilitating responsible innovation in the financial system. This is reflected in the Bank’s strategic investment priorities^{footnote [15]}, which support greater innovation in retail and wholesale payments, and growth in the economy.

The experience of recent years, including the Covid pandemic, Russia’s invasion of Ukraine, stresses in market-based finance, and increasing geopolitical tensions, show more than ever the importance of maintaining confidence in the ability of the financial system as a whole to remain resilient and absorb rather than amplify shocks, and to support the real economy through these.

Key elements of the Bank’s Financial Stability Strategy

The strategy has four broad elements:

a: Surveillance and continuing to identify risks to the economy that could emerge from the UK or global financial system, so that the financial sector can better manage them and be prepared for shocks;

b: Maintaining a robust baseline level of resilience for the UK financial system;

c: Ensuring the Bank is prepared to take action where necessary and that we have the right balance sheet tools to deal with shocks; and 

d: Facilitating responsible innovation in the UK financial system, including to support the changing needs of households and businesses.

a: Surveillance, and continuing to identify risks to the economy that could emerge from the UK or global financial system, so that the financial sector can better manage them and be prepared for shocks

1. Identify and communicate vulnerabilities^{footnote [16]} – in market-based finance and the banking system – to economic and other shocks. The Bank identifies potential risks to financial stability and explains them publicly so that the financial system can be prepared and resilience can be built up – for the private sector to be an effective first line of defence, able to self-stabilise under stress and absorb shocks. Transparency about risks is essential to strengthen resilience and for firms to have effective plans and playbooks in place to manage those risks should they crystallise. One important element of this work is the stress testing of markets, banks, insurers and CCPs to potential macroeconomic and market shocks, and to other risks that may not be neatly linked to the financial cycle. These stress tests, and system-wide exercises aim to ensure the banking system and financial intermediaries can continue to supply credit and other services even in a severe stress, in ways that reflect how roles in the financial system have evolved. In addition to these exercises, the FPC further assesses vulnerabilities in both banks and market-based finance on an ongoing basis, including through monitoring of market intelligence, risk exposures, and horizon scanning.

2. Proactively prepare for emerging risks in the system. The financial system is constantly evolving, and new risks emerging, as technological, economic, geopolitical, and broader societal shifts change the landscape in which it operates. This evolution – and the emergence of new risks, as well as opportunities – can have material implications for the provision of financial services to households and businesses, and for the FPC’s objectives. The Bank works to identify new risks, including through horizon scanning, and builds its approach to individual risks over time.

A forward-looking approach is required to identify and take action in a timely way to reduce risks to the stability of the financial system. Reflecting this, the Bank’s ongoing work continues to recognise the increasing importance of non-bank financial institutions (NBFIs) to the UK economy. The Bank published the final results^{footnote [17]} from its first system-wide exploratory stress scenario in November 2024 and has now launched its next exercise to assess potential systemic financial stability risks arising from the growing role of private markets in the UK financial system.

b: Maintaining a robust baseline level of resilience for the financial system

3. Implement robust prudential regulation in the UK in line with relevant international standards. Recognising the importance of the UK as an international financial centre, and the resilience built in the UK since the global financial crisis, UK financial stability requires overall levels of resilience at least consistent with a robust implementation of international standards, and which supports the international competitiveness of the UK economy.

4. Maintain a safe and open regulatory regime. The Bank aims to ensure a fit for purpose UK regulatory regime that underpins a resilient and dynamic international financial sector that is safely open to the rest of the world. Robust standards and a resilient financial system also support the UK’s competitiveness by providing firms, customers and counterparties with reassurance that they can do business here with confidence. Following the UK’s withdrawal from the EU, Parliament took action, first through the Financial Services Act 2021 and then through the FSMA 2023,^{footnote [18]} to ensure that the UK maintains a coherent, agile, and internationally respected approach to financial services regulation that delivers appropriate protections and promotes financial stability.

FSMA 2023 broadened the PRA’s rulemaking powers and introduced a secondary objective focused on facilitating, subject to alignment with relevant international standards, international competitiveness of the UK economy and its growth in the medium to long term. The PRA has since delivered a range of reforms and plans further initiatives in the near-term. Following the publication of its assessment of bank capital requirements in December 2025, the FPC will work with the PRA to identify whether parts of the capital framework for banks might warrant adjustment to make it more effective, efficient and proportionate.

5. Maintain the Bank’s commitment to mutual international cooperation. This is needed to ensure a safe and strong financial system as it helps identify and address cross-border risks. The Bank participates in international fora for cross-border regulatory issues (such as developing rigorous common international baseline standards) and has a number of Memoranda of Understanding (MoUs) in place with supervisors in other jurisdictions to enable the effective supervision of firms operating across borders.

6. Recognising the importance of the UK as a global financial centre – and working with other UK and international authorities – remain at the forefront of efforts to strengthen international standards where necessary, including for market-based finance. Robust, consistently implemented, standards increase the resilience of the global financial system and ensure a level playing field across jurisdictions – this promotes financial stability, financial openness and efficiency. As host of a global financial centre, the UK also depends upon other jurisdictions implementing robust standards.

The Bank and Financial Stability Board (FSB) are taking important steps to address vulnerabilities in the system of market-based finance that could affect financial stability and encouraging authorities globally to take action to reduce these vulnerabilities through internationally co-ordinated policy reforms. Alongside international work, the Bank continues to work to reduce vulnerabilities domestically where it is effective and practical.

7. Supervise firms to promote their safety and soundness to financial and operational risks (including cyber risk) and in the case of insurers, also to protect insurance policyholders. A forward-looking, judgement-based supervisory approach helps ensure prompt, corrective actions are taken where needed. Effective co-operation and information sharing with other jurisdictions helps supervisors to gauge and manage risks for global financial firms. Strong supervision of globally important FMIs that are based, or operate, in the UK reduces systemic risks both in the UK and at the global level.

Geopolitical risks and continued advances in technology have underlined the critical importance of system-wide operational resilience (in addition to the resilience of individual firms) to the provision of vital services to households and businesses. Against this backdrop of considerably heightened risk, the Bank supports further actions to be taken by firms and FMIs to build resilience to operational disruption.

The Bank continues to develop its framework and toolkit for identifying operational risks to financial stability (for example, from cyberattacks and risks from firms’ increased reliance on critical third parties) and continues to work with firms and FMIs to build operational resilience.^{footnote [19]}

8. Take action to address systemic risks, including to mitigate financial stability risks from very high levels of private sector debt, which can make the system less resilient and economic growth more fragile. The Bank and its committees have a range of tools available to protect and enhance the stability of the financial system. This includes regulatory, supervisory and resolvability measures, and its banking, balance sheet and infrastructure operations. The FPC can use tools where appropriate to prevent and address unsustainable levels of leverage, debt or credit growth in the financial system. It has specific powers of direction over the PRA and FCA, and the ability to make Recommendations to any other persons, including relevant authorities. This includes the power to make Recommendations to HMT to change the regulatory perimeter to deal with risks, if necessary. In using its tools, the Bank seeks to ensure that the resilience of the financial system can adapt and be used effectively.

9. Ensure banks’ resilience is used effectively in times of stress. The Bank aims to ensure that banks can draw on their capital and liquidity buffers, as necessary, to allow them to cushion shocks and maintain the provision of financial services to the real economy. Some buffers are intended to be ‘countercyclical’; as risks grow, the buffers will increase. If and when risks crystallise, buffers are made available for banks to draw down so they can absorb shocks without disrupting services. As part of its work on the efficiency and effectiveness of the bank capital framework, the FPC intends to work with the PRA and international authorities to enhance further the usability of regulatory buffers.

10. Seek to ensure that banks, insurance companies and central counterparties (CCPs) are set up so they can fail without severe disruption. The Bank maintains readiness to use its resolution powers to manage failures as needed of individual banks, building societies, CCPs and certain investment firms to mitigate severe disruption to the financial system and wider economy. The Bank’s resolution regime helps ensure that, should they fail, major firms can remain open and operating, with shareholders and investors bearing losses and the costs of recapitalisation. This helps to preserve financial stability as the critical functions of the firm can continue while an orderly restructuring takes place. Resolution therefore aims to ensure the continued provision of critical services to the real economy, reduce risks to depositors, the financial system, and any residual risk to public funds that could arise due to the failure of a firm, and helps to align the incentives of firms’ shareholders and managers with the broader public interest. In 2023, HMT published a response to its consultation^{footnote [20]} on proposals for an insurer resolution regime that would, if taken forward, provide the Bank with new powers and tools to effectively manage the failure of a major insurer. The Financial Services Compensation Scheme protects individual depositors in the event that a PRA authorised bank, building society or credit union’s financial circumstances are such that it is unable to repay deposits, and insurance policyholders in the event that an insurer is unable or likely to be unable to satisfy protected claims against it (in each case subject to certain limits and conditions).

11. Provide the infrastructure for resilient settlement of high-value sterling payments and support the settlement of key retail payment systems in central bank money including through the Real Time Gross Settlement (RTGS) service.

12. Ensure key decision makers remain accountable for their actions. The Senior Managers and Certification Regime (SM&CR) for banks, insurers and other authorised persons promotes the safety and soundness of regulated financial services firms and financial stability by ensuring responsibilities are clearly allocated, understood and acted on. The Bank supports HMT's proposals for legislative reform and the additional flexibility this will provide, and will work to ensure the SM&CR operates in a targeted, proportionate and efficient manner while continuing to meet its core objectives.

13. Ensure that the Bank’s balance sheet operating framework supplies an appropriate level of liquidity to the market and is responsive to evolving market structures. In response to events such as the global financial crisis, and the economic impact of Covid, the Bank’s balance sheet and policy toolkit has expanded in order to deliver its monetary and financial stability objectives. It includes the purchase of financial assets through quantitative easing (QE) and various funding schemes, including the Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). Both programmes created a large quantity of sterling liquidity, in the form of Bank of England reserves.

Overall, the Bank’s balance sheet has shrunk since its peak through a combination of both quantitative tightening (QT) and repayment of the majority of TFSME, and the Bank is now transitioning to a demand-driven, repo-led framework for supplying reserves. Participants in the Bank’s Sterling Monetary Framework (SMF) are able to source reserves directly from the Bank in its market-wide operations – the Short-Term Repo (STR) and the Indexed Long-Term Repo (ILTR) facilities – as part of their routine liquidity management. These weekly facilities are complemented by the Bank’s on-demand bilateral facilities – its Operational Standing Facility and Discount Window Facility. Participants can swap a broad range of collateral at an appropriate haircut and price in return for reserves^{footnote [21]} – and a broad-based set of institutions now do so in substantial quantities.^{footnote [22]}

The Bank’s balance sheet is likely to shrink further in coming years as reserves fall towards the level demanded by the Bank’s counterparties. Evolving market conditions and policy choices will continue to shape steady state reserves supply but, overall, the steady state balance sheet is likely to remain larger than it was before the global financial crisis.

The FPC contributes to the Bank’s reviews of its market facilities, by giving views (periodically and in the event of material developments) on whether the facilities remain fit for purpose from a macroprudential perspective.

c: Ensuring the Bank is prepared to take action where necessary and that we have the right balance sheet tools to deal with shocks 

14. Stand ready to provide liquidity to the market to reduce the cost of disruption to critical financial services and core markets during periods of heightened uncertainty or market dysfunction.^{footnote [23]} Banks and financial intermediaries are subject to prudent liquidity risk requirements, but these may not always be adequate to absorb the full impact of a stress. It would not be realistic or efficient to expect UK banks and other financial intermediaries to self-insure against every conceivable shock. The Bank’s repo-led operating framework enables firms to increase the quantity of liquidity they obtain from the Bank in our repo operations during stressed market conditions. This is reinforced by contingent facilities to support liquidity management in stressed conditions – including the Contingent Term Repo Facility (CTRF) for commercial banks and Contingent Non-Bank Financial Institution Repo Facility (CNRF), launched in January 2025. The latter is designed to address exceptional episodes of gilt market dysfunction that threaten UK financial stability arising from shocks that temporarily increase non-banks’ market wide demand for liquidity. The facility would only be activated at the Bank’s discretion in circumstances of severe market stress where lending is effective in tackling gilt market dysfunction and the demand for liquidity is outside the reach of the Bank’s existing SMF lending facilities.

d: Facilitate responsible innovation in the UK financial system, including to support the changing needs of households and businesses

15. Shape and facilitate the future of payments and settlements. New payment technologies are resulting in changes to the way payments are and can be made – a core function of the financial system. The Bank’s renewed RTGS service, RT2, which went live on 28 April 2025, delivers enhanced resilience and supports competition and innovation in both wholesale and retail payments.^{footnote [24]} The Bank is also supporting innovation in settlement through its work with the FCA and HMT including through the Digital Securities Sandbox. The Sandbox allows industry to experiment using new technologies, such as distributed ledger technology (DLT), to deliver traditional FMI activities such as trading and settlement of real financial securities, subject to limits to protect UK financial stability.

The Bank is driving the next generation of UK retail payments infrastructure, playing a central role as member of the Payments Vision Delivery Committee (PVDC), and leading the process by chairing the Retail Payments Infrastructure Board (RPIB), which will design the future infrastructure and oversee its implementation. The Bank and HMT are separately exploring whether to proceed with work to further develop a retail Central Bank Digital Currency (CBDC) for the UK.^{footnote [25]} The Bank also intends to finalise the key components of the regulatory framework for systemic retail stablecoins by the end of 2026. The FPC will continue to consider – as part of finalising the regime – whether the Bank's systemic stablecoin regime for sterling-denominated stablecoins will support innovation in payments while meeting their expectations as set out in 2019.

Internationally, the Bank is actively participating in global fora which seek to co-operate and co-ordinate in ensuring that payments innovation can take place safely and sustainably, and is actively contributing to enhancing cross-border payments.

16. Support opportunities to enable economic growth, including the removal of frictions in the supply of finance to businesses. Given the importance of sustainable economic growth to the FPC’s objectives, the FPC will continue to identify further ways in which it can deliver on its objective to support economic growth. It will do this primarily by maintaining financial stability, which is a prerequisite for sustainable growth. It will also continue to identify frictions in how the financial sector supplies credit and critical financial services to households and businesses, and possible solutions that could address those frictions.

17. Respond to structural changes and emerging risks (including from technological innovations). The FPC is continuing to monitor and assess the broader risks to financial stability from the investment in and widespread adoption of artificial intelligence (AI) in financial services. Working alongside other relevant authorities, the Committee will seek to ensure that the UK financial system is responsible in its adoption of AI and resilient to risks that may arise from its widespread use. Through the AI Consortium^{footnote [26]}, the Bank (with the FCA) will facilitate public-private engagement to gather input from stakeholders on the capabilities, development and use of AI in the UK’s financial services.

The FPC also continues to monitor the interactions between cryptoassets, stablecoins, systemic payments stablecoins and other tokenised assets, as well as their interactions with the traditional financial system, whilst supporting productive and responsible innovation in digital assets. The FPC will continue to assess systemic risks and take action to manage these where they arise.

18. Respond to the challenge of climate change, by ensuring the resilience of the financial system to climate-related risks, and ensuring a timely and coordinated international approach to the financial stability risks from climate change. The FPC continues to consider how risks from climate change could impact financial stability, including through its stress testing frameworks where appropriate, ensuring that risks stemming from possible and severe global climate scenarios are reflected in its analysis on climate risks and that sufficient time horizons are considered.^{footnote [27]} The PRA has published updated supervisory expectations^{footnote [28]} and continues to work with banks and insurers to improve climate risk management, for example, by disseminating best practice and considering how the financial risks from climate change could interact with other vulnerabilities. The FPC will continue to improve understanding of, assess, and monitor climate-related risks to financial stability.