Question to the HM Treasury:

To ask His Majesty's Government what steps they have taken to counter future shocks to the UK’s financial system.

Since 2008, the UK financial system has been significantly strengthened, and UK banks now hold over three times more capital than they did at the time of the financial crisis. The government has introduced a resolution regime which empowers the Bank of England to manage the failure of financial institutions in a way that protects depositors and maintains financial stability, while limiting the risks to public funds. The Bank of England is now at the centre of the regulatory framework, and through the Financial Policy Committee (FPC) is responsible for identifying, monitoring and addressing risks to the system as a whole, working alongside the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) who supervise individual firms. The FPC has a range of tools, including regular stress testing of the financial system to severe scenarios. HM Treasury participates in FPC discussions through its non-voting membership on the Committee.

The FPC’s December Financial Stability Report (FSR) set out its current assessment of the stability of the UK financial system. The FPC judge that major UK banks’ capital and liquidity positions remain strong, and the banking system is resilient to the current economic outlook, with capacity to support lending, even if economic conditions are worse than forecast. The FSR was also an important milestone in the ongoing lessons learned process following volatility in the gilt markets in 2022. The government supports this work and continues to work closely with domestic and international regulators to enhance resilience in market-based finance.