Published on
07 July 2026
In December 2025, the Financial Policy Committee (FPC) announced that it would work with the Prudential Regulation Authority (PRA) and international authorities to enhance further the usability of regulatory capital buffers, reducing banks’ incentives to have capital in excess of regulatory requirements and buffers and thus supporting the provision of real economy lending.
To support this, the FPC has outlined a vision for a simpler and more effective capital buffer framework that centres on a single buffer that is releasable in stress, and that can be used without automatic distribution restrictions. The PRA endorses this vision.
Consistent with this, as a near term step, the PRA is clarifying that it could release other systemically important institution (O-SII) buffers in the event of systemic stress. It will do this by exercising its existing discretionary powers to vary the ‘O-SII buffer’ rates, including setting them to zero, under the Capital Buffers and Macro-prudential Measures Regulations 2025, engaging with the FPC. Releasing the O-SII buffer would lower the level of capital at which automatic distribution restrictions apply in stress.
The PRA’s intention is to support banks’ use of buffers to absorb losses in stress periods while reducing banks’ incentives to take defensive actions – such as restricting lending to creditworthy households and businesses. These actions by banks can amplify adverse shocks to the real economy and, in turn, affect their safety and soundness.
Upon releasing the O-SII buffer, an indicative period would be provided by the PRA over which no increase would be expected. This would better allow the capital which has been released to be used.
The PRA recognises that if banks’ capital ratios decline in a stress, their combined regulatory buffers may then need to be rebuilt over multiple years, as otherwise the prospect of a rapid rebuild could undermine banks’ incentives to use the released capital. Consistent with current UK countercyclical capital buffer (CCyB) policy strategy, the pace of return to normal-times O-SII buffer rates would depend on banks’ ability to rebuild capital while continuing to lend to creditworthy UK households and businesses. The PRA would expect to consider a number of factors in making that assessment, including the expected evolution of the economic recovery, prevailing financial conditions and the outlook for banks’ capital.
The PRA intends to consult in 2026 H2 on proposed changes to the statement of policy – the PRA’s approach to the implementation of the O-SII buffer and related aspects of its approach to varying O-SII buffer rates in the event of systemic stress. This will include some further qualitative guidance (eg example scenarios based on different types of stress and recovery) on rebuild expectations.
More broadly, and together with the FPC, the PRA reiterates that all regulatory buffers – including the PRA buffer, the CCyB, systemic buffers, and the capital conservation buffer – exist to be used as necessary in a stress to absorb losses so that banks can continue to support the real economy and market functioning.
In addition to the steps being taken to enhance releasability, the PRA will consider firms’ feedback that greater clarity on the use of the PRA buffer in circumstances outside periods of systemic stress could help buffer usability. It will also consider whether further engagement with relevant stakeholders, including investors and rating agencies, could support understanding of the role of regulatory capital buffers and how the framework is intended to operate.