The Bank of England is making parts of the UK banking capital framework more proportionate. Its Financial Policy Committee (FPC) has set its benchmark for appropriate system-wide Tier 1 capital requirements at around 13% of risk-weighted assets. This is down from the previous benchmark of around 14%.
However, this does not mean every UK bank has had its capital requirement cut by 1 percentage point. The 13% figure is a benchmark for the banking system as a whole.
The changes could still give banks more flexibility to use their balance sheets for lending. But more lending capacity does not automatically mean easier or cheaper loans for UK businesses.
Bank of England Maintains Its 13% Capital Benchmark
The FPC reaffirmed the 13% benchmark in July 2026 as part of a wider review of UK bank capital rules.
The Bank of England says its aim is to keep banks strong while making the system simpler and better suited to current risks. The reforms are also designed to make it easier for banks to use capital to support lending when needed.
Changes to the leverage ratio framework have also been proposed. These include reducing the minimum Tier 1 leverage ratio from 3.25% to 3% and changing how leverage buffers work.
For businesses, this could create more lending capacity across the banking sector. However, banks will still decide where and how that extra capacity is used.
UK Keeps Its 2% Safety Buffer for Banks
The latest FPC decision, published in September 2026, kept the UK Countercyclical Capital Buffer at 2%.
This buffer is designed to help banks absorb unexpected financial shocks without suddenly cutting credit to households and businesses.
The FPC also said the UK banking system remains well capitalised and has continued supplying credit despite economic uncertainty.
This shows that regulators are trying to balance two goals: giving banks enough flexibility to support growth while keeping the financial system resilient.
SME Lending Rules Will Also Change From 2027
Small business lending is also affected by the UK’s Basel 3.1 reforms. The existing SME Support Factor, which gives certain SME loans favourable capital treatment, will be removed.
To limit disruption, the Prudential Regulation Authority has introduced a Pillar 2A SME Lending Adjustment.
Its purpose is to prevent removal of the old support factor from unnecessarily increasing overall capital requirements for eligible SME lending. The Basel 3.1 changes are expected to take effect from 1 January 2027.
For SMEs, this is mainly designed to prevent credit conditions from becoming tighter. It does not guarantee that business loans will become cheaper.
Business Borrowing Demand Remains a Major Challenge
More lending capacity is only one side of the story. EY’s latest UK Bank Lending Outlook, published on 1 October 2026, expects corporate lending growth to fall from 5.3% in 2025 to 2.1% in 2026.
EY says higher costs and economic uncertainty are making businesses more cautious about investment.
This means the key question may not simply be whether banks can lend more. It is also whether businesses want to borrow at current costs and whether they can meet lenders’ credit tests.
How LANOP Can Help Your Business Prepare for Funding
Changes to bank capital rules may create more lending capacity, but businesses will still need to show that they can manage and repay new debt.
LANOP can help businesses prepare for funding by reviewing cash flow, management accounts, forecasts and existing debt. This can give business owners a clearer view of how much they can safely borrow and whether the timing is right.
Through Virtual Finance Director and business advisory support, LANOP can also help businesses strengthen financial reporting, test different funding scenarios, and prepare better information for lenders.
This is important because easier bank rules do not remove normal credit checks. Businesses with weak cash flow, unclear forecasts, or high existing debt may still find it difficult to secure finance.
