The Prudential Regulation Authority (PRA) has published a consultation paper setting out proposals to modernise the UK’s bank liquidity standards, with the aim of ensuring institutions can rapidly convert liquid assets into cash during fast-moving stress events — lessons drawn directly from the collapse of Silicon Valley Bank (SVB) in 2023.
The proposals, published on 17 March 2026, are designed to ensure banks can monetise liquid assets quickly in a fast-paced stress event.The consultation, known as CP5/26, represents the most significant overhaul of the UK’s liquidity framework since the rules were first written in the aftermath of the 2008 global financial crisis, and is open for responses until 17 June 2026.
At the heart of the proposals is a requirement for banks to do more to evaluate and stress-test their own liquidity positions. Firms would be required to evaluate their liquidity, identify barriers to monetising assets, and conduct internal stress tests covering how they would react to rapid outflows within a week — in addition to the existing monthly reporting requirement. The PRA also proposes to remove the current exemption that allows sovereign bonds and other so-called “level 1 assets” to be excluded from annual testing of a firm’s ability to monetise non-liquid assets. This change is intended to provide greater assurance that banks can quickly raise liquidity in an emergency, regardless of the composition of their holdings.
Crucially, the regulator has been clear that the reforms are not intended to increase the overall burden on banks. 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. To balance the new reporting requirements, the PRA also proposes to reduce data requests from firms in other areas, preventing a net increase in overall reporting obligations. Additionally, the proposals encourage firms to be operationally ready to make use of central bank facilities at short notice — a key lesson from the SVB episode, where speed of response proved critical.
The potential effects of rapid liquidity outflows were starkly illustrated in March 2023, when Silicon Valley Bank experienced significant liquidity outflows within just a few days.
The Basel Committee’s October 2024 progress report on the 2023 banking turmoil noted that SVB would have experienced 85% of total deposit outflows over two days, and Credit Suisse experienced 25% of total deposit outflows over seven days. These figures underpin why the PRA believes faster stress-testing windows and greater operational readiness are essential.
PRA deputy governor for Prudential Regulation and CEO Sam Woods 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.”
The liquidity proposals sit within a broader programme of regulatory reform being advanced by the PRA. Other recent changes include simplifying capital requirements for smaller firms through the Strong and Simple framework, while simultaneously introducing Basel 3.1 for larger firms, cutting red tape 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. The removal of the Building Societies Sourcebook, alongside new measures to support the mutuals sector, also forms part of this wider push to maintain stability while promoting growth and competitiveness in the UK financial sector.
Keep up with all the latest FinTech news here
Copyright © 2026 FinTech Global
