The Prudential Regulation Authority has clarified that it could release other systemically important institution, or O-SII, buffers in the event of systemic stress, as a near-term step in broader work with the Financial Policy Committee to improve the usability of capital buffers. The measure would lower the capital level at which automatic distribution restrictions apply in stress, with the stated aim of helping banks absorb losses and continue lending to creditworthy households and businesses rather than taking defensive actions that could amplify an economic downturn. The PRA said it would use its existing discretionary powers under the Capital Buffers and Macro-prudential Measures Regulations 2025 to vary O-SII buffer rates, including setting them to zero, while engaging with the Financial Policy Committee. If the buffer were released, the PRA would provide an indicative period during which no increase would be expected. It also signaled that any rebuilding of combined regulatory buffers after a stress may need to occur over multiple years, with the pace of return to normal O-SII rates linked to banks' ability to rebuild capital while continuing to lend, taking account of the economic recovery, financial conditions and the outlook for banks' capital. The PRA intends to consult in the second half of 2026 on changes to its statement of policy on implementing the O-SII buffer and on related aspects of how it would vary O-SII rates in systemic stress, including further qualitative guidance on rebuild expectations. More broadly, it reiterated with the Financial Policy Committee that all regulatory buffers can be used as necessary in stress, and said it will also consider firms' feedback on clarity over use of the PRA buffer outside systemic stress and whether further engagement with investors and rating agencies is needed.

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