PRA Proposes Bank Liquidity Reforms and Stress Tests

Bank of England News

Published March 17th, 2026

Detected March 17th, 2026

Summary

The Prudential Regulation Authority (PRA) has published proposals to reform bank liquidity standards, focusing on the ability to monetize liquid assets during stress events. The consultation aims to ensure banks are operationally prepared for rapid outflows and to update standards based on recent market events.

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What changed

The Prudential Regulation Authority (PRA) has issued a consultation proposing significant reforms to the liquidity framework for banks. Key changes include requiring firms to evaluate their liquidity, identify monetization barriers, and conduct internal stress tests for rapid outflows within a week, alongside existing monthly tests. The proposals also remove an exemption for sovereign bonds in annual testing of non-liquid assets and encourage preparedness for central bank facility usage. These reforms are informed by lessons from events like the Silicon Valley Bank collapse and aim to ensure liquid assets are usable in stressed scenarios without increasing holding requirements or overall reporting burdens.

Regulated entities, primarily banks, should review these proposals and prepare to respond to the consultation. The PRA is seeking feedback on modernizing liquidity standards, emphasizing operational readiness for stress events. While the proposals aim to minimize additional work, firms need to assess their internal processes for monetizing assets and conducting stress tests. The consultation period is critical for providing input on these changes, which are designed to enhance financial stability by ensuring banks can effectively manage liquidity during crises. Specific compliance deadlines for implementation will follow the finalization of these proposals.

What to do next

Review PRA consultation on liquidity reform proposals
Assess internal liquidity monetization capabilities and stress testing processes
Prepare response to the PRA consultation

Source document (simplified)

PRA publishes liquidity reform proposals

The Prudential Regulation Authority has today published proposals aimed at ensuring banks can monetise liquid assets quickly in a fast-paced stress event – such as the collapse of Silicon Valley Bank in 2023.

Published on

17 March 2026

News release

The Prudential Regulation Authority (PRA) has today published proposals aimed at ensuring banks can monetise liquid assets quickly in a fast-paced stress event – such as the collapse of Silicon Valley Bank in 2023.

Specifically, the PRA consultation to modernise liquidity standards proposes to:

Require firms to evaluate their liquidity, identify barriers to monetising assets, and conduct internal stress tests on how they would react to rapid outflows within a week (alongside a month in current reporting);
Remove an exemption for sovereign bonds and other “level 1 assets” for annual testing of monetising non-liquid assets, to provide further assurance that firms are able to quickly raise liquidity;
Reduce data requests of firms in other areas around this topic, preventing an overall increase in reporting as a result of the changes;
Encourage firms to be operationally prepared to make use of central bank facilities when needed. The PRA’s proposals focus on preparedness for stress by ensuring liquidity is available, while not setting additional requirements to hold more liquid assets and minimising additional work for firms.

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, said:

“This proposed update of our liquidity requirements takes forward key lessons we’ve learnt from the past few years. We’ve focused the changes not on increasing the amount of liquid assets banks have to hold, but instead on making sure that those assets do what they say on the tin and really are usable in the event of a run.”

These proposals come in light of the significant advancement in banking, payment and communication technology since they were last updated in the wake of the 2008 financial crisis. They also factor in significant lessons learnt from the collapse of Silicon Valley Bank and Credit Suisse in March 2023.

The changes sit alongside the PRA’s extensive work to maintain stability and promote growth and competitiveness in the financial sector. Recent changes include:

The removal of the Building Societies Sourcebook alongside new measures to support the growth of the mutuals sector;
Simplifying capital requirements for smaller firms through Strong and Simple, while simultaneously introducing Basel 3.1 for larger firms;
Cutting red tape and supporting increased and rapid investment for insurance firms through Solvency UK and the Matching Adjustment Investment Accelerator;
And offering tailored support to fast-growing and innovative financial firms through the Scale-up Unit.