Bank of England launches 2025 Bank Capital Stress Test for seven systemic UK banks

The Bank of England has launched the 2025 Bank Capital Stress Test for the seven largest and most systemic UK banks and building societies, succeeding the Annual Cyclical Scenario. The hypothetical scenario will be used by the Financial Policy Committee and Prudential Regulation Committee to assess banks’ resilience to a severe, broad “tail risk” shock featuring deep UK and global recessions, large asset price falls, higher global interest rates and stressed misconduct costs. The exercise has three elements: a macroeconomic scenario, a financial markets and traded risk scenario, and a misconduct stress. In the macro scenario, a severe global aggregate supply shock leads to UK GDP falling 5% and world GDP falling 2%, with UK unemployment almost doubling to a peak of 8.5% in the third year; world trade falls 20%, oil and gas prices rise sharply, inflation peaks at 10% before returning to the 2% target, Bank Rate rises to a peak of 8% before being lowered, and UK residential property prices fall 28%. The participating firms are Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK and Standard Chartered, together representing 75% of lending to the UK real economy. This is the first test since the end of transitional arrangements for International Financial Reporting Standard 9, and the Bank is implementing changes intended to remain consistent with unchanged Financial Policy Committee and Prudential Regulation Committee risk tolerance, using the 2025 exercise to assess their impact for future stress tests. Results will be published at aggregate and individual bank level in 2025 Q4 and will inform the setting of capital buffers for the UK banking system and participating firms, with the Bank expecting to run a Bank Capital Stress Test with bank submissions every other year.