Financial Stability Report December 2025 (Bank of England)

Summary

• In the 2025 Bank Capital Stress Test the aggregate CET1 capital ratio starts at 14.5% and falls to a low point of 11.0% in the first year, and no individual bank was required to strengthen its capital position.p.11
• The FPC maintained the UK countercyclical capital buffer rate at its neutral rate of 2%.p.11
• Growth in mortgage lending has risen to 3.2% year on year, above the post-GFC historical average of 2.2%.p.10
• By some industry estimates, AI infrastructure spending over the next five years could exceed five trillion US dollars, with approximately half expected to be financed externally, mostly through debt.p.7
• The UK insurance industry has committed to invest £100 billion in UK productive assets over 10 years.p.10

Key insights

1. Equity valuations in the US are close to the most stretched they have been since the dot-com bubble, heightening the risk of a sharp correction.p.7
2. Credit spreads remain compressed by historical standards.p.7
3. The FPC supports the next system-wide exploratory scenario, focused on the resilience of the private markets ecosystem.p.8
4. Two recent high-profile US corporate defaults demonstrated the risks of reliance on credit rating agencies.p.13
5. Major UK banks' average price-to-tangible book ratios have increased further above 1 since the July FSR.p.11
6. The FPC will work to enhance the usability of regulatory buffers and will review the implementation of the leverage ratio in the UK.p.12
7. The Bank and FCA are developing regimes for systemic and non-systemic stablecoins.p.14