Episode Details

"When you look at the world now, does it look more uncertain or less uncertain?" In December 2025, the Bank of England's Financial Policy Committee (FPC) answered that question by cutting the equity capital requirement for UK banks. David Aikman (NIESR) and John Vickers (University of Oxford), two former senior Bank insiders who helped to design the regulatory framework post-GFC, think the committee got it wrong.

The FPC lowered the benchmark capital requirement from 14% to 13% of risk-weighted assets, a move that could free up roughly £30 billion of capital across the UK banking system. Aikman and Vickers see no compelling economic reason for the change. They argue that the 2015 benchmark was already set too low, built on questionable assumptions about how well resolution frameworks would work. Since 2015, Brexit, the pandemic, and a sharply stretched fiscal position have all increased the likely cost of a future crisis. The practical effect of the loosening may not even be more lending, but higher dividends and share buybacks. And the December decision may signal a weakening of the leverage ratio backstop, the constraint that limits bank borrowing regardless of how risk weights are applied.

The research behind this episode:

Aikman, David, and John Vickers. 2026. "The Bank of England's Capital Mistake." VoxEU, 15 January 2026. 

To cite this episode:

Phillips, Tim, David Aikman, and John Vickers. 2026. "The Bank of England's Capital Mistake." VoxTalks Economics (podcast). 

Assign this as extra listening. The citation above is formatted and ready for a reading list or VLE.

About the guests

David Aikman is Director of the National Institute of Economic and Social Research (NIESR). He worked at the Bank of England from 2003 to 2020, where he served as Technical Head of Division in Financial Stability and was centrally involved in the creation of the Financial Policy Committee. His research spanning macroprudential regulation, systemic risk, and the macroeconomics of financial crises has made him one of the leading academic voices on bank capital policy in the UK.

Sir John Vickers is Warden of All Souls College and Professor of Economics at the University of Oxford. He served as Chief Economist and a member of the Monetary Policy Committee at the Bank of England, and chaired the Independent Commission on Banking from 2010 to 2011, which recommended substantially higher capital requirements than those subsequently adopted. His research spanning industrial economics, competition policy, and financial regulation has shaped UK banking policy for two decades.

Research cited in this episode

Equity capital requirements specify the minimum proportion of a bank's assets that must be funded by shareholders' equity rather than borrowed money. Equity is the only form of funding that can absorb losses without triggering insolvency: if a bank suffers unexpected losses, its shareholders bear them first. In the run-up to the 2008 financial crisis, some large institutions held equity equivalent to as little as two or three percent of their total exposures, implying leverage of up to forty times; a small shock was enough to render them insolvent. The post-crisis repair effort was designed to ensure that could not happen again.

Risk-weighted assets (RWAs) are the denominator against which capital requirements are measured. Rather than applying the capital ratio to the raw value of all assets, the framework deflates each asset by an estimated risk factor: a mortgage backed by collateral is treated as less risky than an unsecured corporate loan, for example. Capital requirements are then e