Private markets globally and in the UK are playing a greater role in the financing of the real economy and have become an integral part of financial markets. This has been an area of increasing focus at the Bank of England, other UK regulators, international peers, and global bodies focused on financial stability.
The Bank’s latest financial stability assessment of developments in private markets can be found in its July 2025 Financial Stability Report (FSR). We assess such developments as part of the broader shift to market-based finance (MBF) (financing from non-bank financial institutions and capital markets). Our general approach to assessing that structural shift is set out in a Financial Stability in Focus publication, whilst updates on current developments can be found in our successive FSRs.
For the purposes of this submission, the Bank of England defines private markets as securities, assets, and investments that aren’t available on public markets (such as the London Stock Exchange). The most prominent providers of equity finance from private markets are private equity, venture capital, growth capital and real estate funds. Private sources of credit include private credit funds and syndicated loans (held by non-banks). Note this definition excludes financing supplied directly by banks to corporates, even though banks play a key role in providing advisory and financial services to private markets actors.
There are many positives to this growth in private markets. It has broadened the types of capital available to the real economy, bringing benefits from greater competition and diversification. A variety of providers of capital, with a wider range of risk appetites, has generated greater availability of finance for businesses, and greater capacity to take a longer-term perspective or to support challenging business plans such as turnarounds. Academic literature finds evidence that private equity (PE) ownership enhances portfolio firms’ operational efficiency, driving innovation, investment, and financial performance. These benefits often persist beyond the PE exit and remain during periods of economic turmoil, including the Global Financial Crisis (GFC) and the pandemic.[1] Over the past 15–20 years private markets have grown globally at a rapid rate, reaching around $16 trillion by total assets under management (AUM), of which $4 trillion is dry powder, broadly representing funds available for additional investment. To illustrate the importance of private markets, this compares to the global equity market capitalization of $126.7 trillion. AUM within the PE sector – the most prominent form of private markets activity – have grown from around $2 trillion to $8 trillion globally over the last decade. Similarly, private credit (PC) funds have increased their AUM from about $0.2 billion in the early 2000s to over $2.5 trillion today.[2] UK private equity firms play a significant role in this market, managing more than half of total European AUM. PE-backed corporates account for around 15% of total UK corporate debt. PE finances corporates accounting for around 5% of UK private sector revenues and around 10% of UK private sector employment, over 2 million employees. Furthermore, suppliers to those business account for over 1 million additional employees. Companies in ‘software, communications, IT, and media’ sectors, and from ‘commercial products and services’, are particularly prominent, with each representing around 20% of all private equity fund investments. Firms in ‘consumer goods, hospitality, and retail’ sectors receive around 15% of private equity’s total financing.
There are a few key drivers of this growth in private markets.
Chief amongst them is the low-interest rate environment following the GFC, as central banks globally acted to support economic recovery in its aftermath. This prolonged period of low yields prompted investors to seek higher returns. And indeed private finance offered investors higher prospective returns, lower measured volatility, and therefore higher apparent risk-adjusted returns than in public markets. That led investors to increase their allocations to private markets. Many private market strategies rely on leverage, and the low-rate environment allowed the use of low-cost credit, often from other private sources. Private markets are often able to offer to corporates capital that defines itself as more "patient" and long-term, a range of different products, a wide range of risk appetites, and very flexible financing structures. All of that led to an increase in the supply and demand for private assets from investors and corporates, who also welcomed the funding diversification they offer.
The growth of private finance also, in part, reflects post-GFC banking reforms and the deliberate and necessary increase in financial resilience that the regulatory regime required of banks. In the run up to the GFC, banks had taken unsustainable risks and had insufficient capital and liquidity resources to absorb adverse shocks given the risks they had taken. This put depositors’ money at risk, and hampered banks’ ability to continue lending to households and businesses. The changes in regulation are not designed to drive activity out of the banking sector, instead they aim to make bank financing more reliable and dependable for businesses and households throughout a cycle. Banks’ actions to protect their own balance sheets during the GFC and its aftermath – by reducing the financing they provided to the real economy – amplified the underlying shock severely and damaged the economy persistently in ways that have had lasting impacts on growth. Public taxpayer support for the banking sector was required in many countries to minimise the systemic consequences of multiple banks failing in short succession. Reflecting lessons learned, the post-GFC reforms to bank regulation and supervision have ensured that banks maintain levels of capital and liquidity that better reflect the risk of their assets and so have more capacity to support the real economy sustainably, in bad times as well as good. It is notable that throughout the number of stresses we have seen in recent years – e.g. during Covid, the energy and supply shocks caused by Russia’s invasion of Ukraine, and the turbulence associated with the failures of Silicon Valley Bank and Credit Suisse – UK bank solvency has not been challenged, which has meant that banks have been able to support the UK economy through shocks, rather than being part of the problem.
As described in more detail below, detailed analysis suggests that these post-crisis reforms support sustained financing of the real economy by the banking sector. However, as with any widespread reforms, their impact varies across business lines. The financing of corporates is an area where this is notable, in that private and market-based finance have gained market share from banks. While banks are still by far the largest providers of the stock of direct lending to the real economy, their share of the total has declined somewhat from 2008 to 2024.
A number of activities – including much of the riskiest forms of lending – have migrated out of banks and into MBF, including private markets. Banks are still heavily involved in arranging and supporting this lending indirectly. Much of the underlying risk is now held by non-banks, who in turn rely on banks for their own financing – banks are by far the major providers of leverage to non-banks.
From a financial stability perspective, there are some desirable features in this diversification of funding sources for corporates. First, the selectivity of banks in how much of the riskiest forms of lending they maintain on their balance sheet is a sign that – relative to the run-up to the GFC – the incentives to take better account of the underlying risk of their lending are effective. In turn, this shields households’ and corporates’ deposits from those higher risks, reduces the dangers from interconnections and systemic contagion that occur when banks fail, and reduces the need for government intervention to support banks. It enables banks to be shock absorbers during stress as mentioned earlier. Second, many private markets investors who now hold such higher risks are in principle better placed to absorb losses without causing systemic contagion.
Whilst on the whole these developments have been positive for the financing of the economy, the way private markets have grown creates new risks to financial stability. They have expanded not only in size but also in complexity and interconnectedness, often involving a significant cross-border dimension. This is true of trends in private equity, private credit, other credit markets funding this activity, as well as the broader ecosystem that finances these markets. That includes banks and insurers who have a range and depth of direct and indirect involvement in it. The July 2025 FSR and a recent PRA speech set out the nature and extent of banks’ exposures to that sector, and the November 2024 FSR does so for insurers and reinsurers. The interconnections of private markets are pronounced: their significant funding of the real economy; their reliance on financing from the banking sector; and their growing links with the insurance sector. These developments have the potential to increase the fragility of parts of the global banking and insurance sectors and pose systemic risks if underlying vulnerabilities are not addressed. The Financial Policy Committee (FPC) has noted three fundamental features of private markets that could cause systemic risks: the widespread use of leverage, the opacity of valuations and extent of reliance on rating agencies, and the correlation with other risky funding markets. And since the ecosystem grew in a low-interest rate environment, the return to a more normal level of interest rates globally naturally puts pressure on it now. So does the higher risk of weak global economic growth, including as a result of the current fragmentation of the global environment, which can spill back to the UK. This uncertainty is heightened as private markets in their current form – and the wider financial system interconnected with them – have not yet experienced a significant credit cycle downturn.
Developments and dynamics in private markets are challenging to monitor as they are less transparent than public markets. For instance, assessing the provision of credit through the cycle is more difficult in the case of private credit compared to financing from banks and public markets. Information on the risk in private markets is also harder to source.
Finally, the sector continues to evolve and our understanding of it and its associated risks has to stay up to date. For example, there has been a desire to increase retail investor participation in private markets. Whilst greater retail access is beneficial in principle, if these structures grow, liquidity risk and other new risks might arise. Sustainable business models, fund structures, and risk management are essential to avoid any potential for destabilising reactions under stress, which can ultimately hurt retail investors and impact financial stability.
In summary, the rise of private finance in the wake of the GFC, if managed safely, has positive implications for both financial stability and growth. There’s a substantial common interest among industry, government, and regulators in the sector growing, provided that this is on a safe and sustainable basis. There is much merit in exploring how private finance, possibly as part of public-private partnerships, can boost long-term productivity growth in the UK and support small and medium-sized enterprises (SMEs) scaling up. However, for this to happen successfully for the economy, it is important to understand the risks and ensure they are managed prudently. To sharpen its evaluation of these risks, as noted in the most recent FSR published in July, the Bank is stepping up its engagement with private market participants and key providers of capital to fill in data gaps and understand how that ecosystem finances the real economy and how it may operate during a stress. We are currently discussing these plans with key private markets firms and plan to provide an update later in the year.
The stock of direct lending by banks to the real economy (households and private non-financial corporates) has increased by over 35% between 2008 and 2024 – from nearly £2.7 trillion to over £3.6 trillion outstanding. Bank lending remains the dominant source of direct lending to the real economy, accounting for the vast majority of household and SME lending, and a significant portion of large corporate loans. Further analysis of trends in lending since 2008 is covered below.
In 2022, the Basel Committee on Banking Supervision (BCBS) undertook an evaluation of the post-GFC reforms, including an assessment of the impact of the reforms on bank lending to the economy. It found that the overall level of bank lending expanded in most jurisdictions. This suggests that, while the reforms may have limited lending by those banks that had weaker initial regulatory ratios, there is no indication that the reforms impaired the aggregate supply of credit to the economy.
Instead, they have helped ensure the banking system has the resilience to continue supporting the real economy through an economic downturn, improving depositor protection and reducing the likelihood that public support for the banking system would be needed again. For example, banks’ greater resilience allowed them to exercise forbearance to mortgage borrowers during the Covid pandemic where at least 1.8 million mortgagors had their payments deferred, thereby providing many households some much-needed support at a critical time. Further analysis of the impact of post-GFC banking reforms on lending is covered in question 6.
Nevertheless, the comparatively faster growth rate of market-based finance since the GFC means that banks’ share of the total stock of lending directly to the real economy, while still largely predominant, has declined somewhat – from 85% in 2008 to around 80% in 2024. This was most pronounced in corporate lending. At the same time, the role of private markets in the UK has increased, particularly for financing corporates.
As discussed above, that expansion has been driven by various factors, including post-crisis low-interest rate policies that were used to ensure inflation was returned to target, and corporates’ desire for more "patient" long-term capital or more flexible financing structures. The need for banks to take better account of the underlying risk in their lending than in the period of excessive risk-taking before the GFC has likely affected their direct involvement in the riskiest forms of lending post GFC. This comes with the benefit of sustained bank lending – and better-insulated deposits – for households and corporates during times of stress. And it also means that the riskier form of lending now comes from a part of the financial system that is better suited to providing it.
While the share of lending to corporates directly provided by banks has decreased, it is important to note that they play an important indirect role in supporting lending to corporates via market-based finance and non-bank financial institutions – as set out in more detail in the answer to the next question. This includes through the arranging of syndicated loans to private-markets-backed corporates and through the provision of leverage in the form of loans to private market funds. The latter has been a major and growing line of business for banks and is one component of the increase in major UK banks’ exposures to non-bank financial institutions (NBFIs) (excluding derivatives), which have risen from 17% of total assets in 2018 to 21% in 2024. So banks are still very involved, but some of that involvement has become more indirect.
Banks’ provision of financial services to the private market ecosystem covers a vast array of services, and private markets have become an important source of both revenue and risk for a number of large banks. Private equity is the market where banks provide the widest range of services, although many similar services are provided to other private markets. Banks provide the following services:
Direct linkages also arise through banks’ trading and advisory activities. Banks offer hedging solutions to private market participants to manage currency, interest rate, and other financial risks. Indirect linkages with private markets occur through banks’ holdings or financing of CLOs which are composed of leveraged loans. UK banks have small holdings of CLOs and tend to hold the highest quality tranches.
For major UK banks, private markets exposures are mostly concentrated in lower risk upstream lending and banks typically have a smaller midstream portfolio. Major UK banks downstream lending portfolios have been relatively stable in aggregate over the last few years. Recently we have seen growth in both upstream and midstream lending, and those are likely to be continuing growth areas for banks if private market activity continues to expand.
These exposures can pose risks to banks and to overall financial stability. The lack of aggregated data on banks’ total concentration exposures to private markets and the various ways in which they are involved makes it difficult to monitor these vulnerabilities. Indeed, these challenges, as well as the risks associated with them, were highlighted in the Prudential Regulation Authority (PRA) 2024 thematic review of banks’ private equity related financing activities, the findings of which were communicated to banks’ credit risk officers (CROs). The review focused on the adequacy of banks’ risk management frameworks that govern PE-linked financing and related hedging activity (derivative exposures). It found that many banks are unable to uniquely identify and systematically aggregate or measure their combined credit and counterparty risk exposures to private equity, meaning they cannot monitor comprehensively risks emanating from private markets. The PRA has since received responses from banks on their risk management of private equity exposures noted in its letter and continues to view this as a priority.
Private markets have become an increasingly important source of funding for the UK real economy. This growth provides a number of benefits.
There are a wide range of strategies pursued by funds active in private markets. The business models of some private market participants facilitate the provision of long-term capital that helps businesses scale, innovate, and invest in productivity-enhancing initiatives. Venture capital funds SMEs that may struggle to access traditional financing but have significant growth potential, and private equity can support the growth of larger, more established firms. As set out in the June 2024 FSR, from a macroprudential perspective, the long-term nature of private capital allows, and can incentivise, the managers of private equity funds to act less cyclically, which can reduce the volatility of financing flows in macroeconomic downturns. To the extent that PC substitutes for other forms of financing it can contribute to the diversification of funding sources, further reducing cyclicality. Some academic literature also indicates that PE buyouts can increase the productivity of businesses through greater capital expenditures.[3]
Equally, this is not without risks for the corporates involved. Many private markets strategies use leverage, particularly private equity. Many PE-backed corporates have high levels of debt and are financed from riskier credit markets like leveraged loans, high yield bonds and/or PC funds with strategies focused on higher risk transactions. Overall, privately backed corporates get two thirds of their funding from such risky markets. This makes PE-backed corporates relatively more exposed to the impacts of higher interest rates and deteriorations in investor risk sentiment compared to other firms, such as risks of refinancing. The Bank has also previously highlighted credit risk from the weakening in underwriting standards in these markets in the years following the GFC. Examples include the increasing share of leveraged loan deals with weaker covenants, a rise in the use of earnings add-backs to reduce headline leverage multiples, and looser documentation standards. These vulnerabilities could expose PE-backed corporates – and investors in their capital structure – in a broader economic downturn.
As set out in previous FSRs (e.g. June 2024 FSR) the growth of private markets could pose risks to financial stability if not well managed. As set out earlier, vulnerabilities from high leverage, opacity around valuations and the extent of reliance on rating agencies and on riskier credit markets, mean the sector has the potential to generate losses. These could ultimately impact systemic financial institutions, spill over to other financial markets, or affect the funding of corporates, and hence the wider real economy.
The sector is currently facing challenges from high interest rates and a weaker and more uncertain growth outlook, in part related to global fragmentation around trade. These factors are both increasing the demands from investors for liquidity as they seek to rebalance their portfolios and making it more challenging for funds to sell portfolio companies to raise liquidity to distribute to those investors. This has led to funds increasingly using other strategies to provide returns to investors, such as continuation vehicles that transfer ownership of selected portfolio companies to a new fund.
Should exit opportunities remain limited, private asset managers may face challenges in attracting new capital and could ultimately be compelled to sell corporate assets at the maturity of their funds. Widespread sales could affect the value of corporate assets more widely, particularly given relative opacity over valuations and some credit ratings in private markets (see findings from the Financial Conduct Authority’s (FCA) review of private market valuation practices). This in turn could affect investor risk appetite for corporate debt across private and public markets, reducing the supply and increasing the cost of finance for corporates.
Interconnections across financial markets may heighten systemic vulnerabilities, particularly under stress conditions, by reinforcing correlations and amplifying shocks. Globally, large institutional investors are the primary participants in private market funds, with insurance companies and pension funds collectively accounting for approximately 75%–80% of capital invested. Insurance companies and pension funds in the UK currently have relatively lower exposures to these sectors.
Banks directly and indirectly finance private market funds and PE-backed corporates through a number of channels. They arrange and syndicate loans, offer various forms of NAV based financing (discussed in 2024 Bank speech Not-so-private Questions), and also typically provide revolving credit facilities to PE-backed corporates. These loans can become further interconnected with the financial system when securitised via collateralised loan obligations (CLOs). CLOs and other parts of the financial system place a degree of reliance on credit ratings. That creates an important role for credit rating agencies in this system of finance. A shock to highly-indebted corporates could be amplified by these interconnections, with losses and the impact on risk appetite potentially spilling across several markets and sectors.
A further notable form of greater interconnection between private markets and the wider financial services sector is their growing partnering with insurers. The use of funded reinsurance by insurers is one example. This generally involves an insurer transferring risk to an offshore reinsurer where the proceeds are reinvested in, and secured by, PC assets. Often, either as part of these developments or more generally, alternative asset managers which operate private markets funds are acquiring insurers or forming other partnerships with them. Globally, PE control of life insurance assets has increased by more than US$1 trillion from very low levels since 2009.[4] These partnerships target the synergies between long-term funding from insurance and higher returns from private assets. But if not well managed, such arrangements could result in a build-up of systemic risk, and the way in which that ecosystem could respond to shocks is untested.
Overall, for the diversification of funding sources to be beneficial to the economy and financial stability, it needs to be resilient both in normal times and in stress. And while the private finance sector has been resilient so far, having grown rapidly in a low interest rate environment, it is now facing challenges from high interest rates and a weaker and more uncertain growth outlook. These conjunctural challenges have the potential to interact with existing and structural private market vulnerabilities from high leverage, opacity around valuations, and interconnectedness (See response to Question 4 for further detail).
The lack of transparency is one of the main drivers of risks and vulnerabilities in private markets. Private markets are less transparent than public markets as they have fewer disclosure requirements and this makes assessing the level of risk taking, valuations practises, and interconnections challenging. Most quantitative information on the market is collated by private companies that sell the data. This information is compiled from a range of incomplete data sources (e.g. disclosures that some investors in private markets funds have to make on their investments), which have a number of potential biases. This makes it challenging for market participants and the Bank to monitor developments. The Bank currently relies on a mixture of discussions with market participants, commercial data sources, and data from some regulated firms.
These data gaps are one of the reasons for the increased structured engagement the Bank is exploring with key private markets participants following our System-wide Exploratory Scenario focused on core public markets last year. This exercise should fill key data gaps and allow us to understand risks at a system level. It may also suggest ways to improve our monitoring and engagement with the sector on an ongoing basis.
Turning to valuations specifically, these are typically updated on a quarterly basis and rely on internal models and third-party valuations. Lagging valuations may contribute to private market participants acting less cyclically given they are less sensitive to day-to-day volatility. However, any valuation lag or inaccuracy means investors and lenders may be relying on outdated or overly optimistic asset values. This could become a particular issue in any period of stress if confidence in valuations is lost. Notably, private markets firms often retain discretion over whether to adjust valuations during periods of market stress, further contributing to opacity.
In March 2025, the FCA published findings of a multi-firm review into valuation practices for private market assets. The FCA’s work focused on investor protection and conduct risks, which, if poorly managed, could result in adverse outcomes for investors. This review further supports the view that private equity valuations can be subjective, contributing to uncertainty and a lack of transparency.
Since the GFC, the non-bank financial sector (of which private markets are a component) has more than doubled in size, now accounting for around half of UK and global financial sector assets. Non-bank lending to the real economy has increased, particularly in the corporate sector, where more than half of the lending to UK corporates is now provided by the non-bank sector. Non-banks also play a crucial role in core systemically important financial markets, such as the gilt and gilt repo markets. Therefore, it is vital that MBF is resilient and absorbs rather than amplifies shocks, enhancing financial stability.
However, there are vulnerabilities in MBF that could pose risks to UK financial stability. These include deficiencies in managing maturity and liquidity mismatches, where firms hold long-term assets funded by short-term liabilities, making them vulnerable to sudden withdrawals or redemptions. This structural fragility can amplify stress during periods of market volatility. Excessive leverage, particularly in hedge funds and other NBFIs, can lead to forced asset sales and price dislocations when markets move against highly leveraged positions, with significant consequences, as we have seen following the failure of Archegos in 2021. These vulnerabilities can amplify stress during market volatility, as seen during the March 2020 “Dash for Cash” and the September 2022 Liability Driven Investment (LDI) stress. If left unaddressed, these issues could undermine the resilience of the financial system and amplify systemic risk.
The non-bank sector is global, highly interconnected, and complex, with material data gaps. Assessing and identifying risks in MBF remains challenging. Therefore, increasing resilience in MBF both domestically and globally is essential. The Bank continues to invest in its surveillance and risk assessment capabilities to increase understanding of risks in MBF, including through structured engagement with firms. It also actively supports international policy efforts by contributing to the Financial Stability Board’s (FSB) work programme and collaborating closely with international partners. The FPC, working with other regulators, has also taken steps domestically to strengthen liquidity buffers for several types of funds.
Also, as alluded to in the previous question, the Bank, in collaboration with the FCA and The Pensions Regulator, carried out a system-wide exploratory scenario to test the resilience of core UK markets last year. The exercise was the first of its kind, involved a very wide range of participants in those markets (banks and non-banks), and yielded insights that enabled market participants to update their risk management and be better prepared for shocks. Such stress tests of an entire ecosystem are powerful and promising tools to help markets develop their ability to self-stabilise after shocks.
The Bank is also engaged in international policy work, notably via the FSB and with international partners, to address risks from non-bank leverage, Money Market Funds, and Open-Ended Funds. The FPC supports the timely implementation of the FSB’s policy recommendations on leverage in NBFIs, which include measures to improve risk identification, mitigate risks to financial stability, and enhance cross-border cooperation. Robust regulatory standards and international cooperation are fundamental to financial stability and long-term economic growth.
Since the 2008 GFC, the demand for finance from businesses has undergone significant changes, reflecting the economic cycle, changing business demand, and several shocks that have hit the economy. Demand for finance by businesses since 2008 can be broadly divided into three periods: a deleveraging period immediately after the 2008 crisis until 2014, a growth period from 2014 until the onset of the covid pandemic in 2020, and a broadly stable period since 2020.
In the immediate aftermath of the 2008 crisis, demand for finance contracted sharply. The absolute amount of UK corporate debt troughed in 2014, around 10% below its 2008 peak, following the euro-area debt crisis. This partly reflected the demand for corporate finance easing in response to the subdued demand environment following the crisis and growth of over 60% in corporate debt between 2003 and 2008. While the amount of market-based debt continued to increase steadily during this time, bank provided loans contracted by over one-third. This contraction reflected the nature of the 2008 crisis and its impact on the banking system’s ability to provide credit to the real economy, something that post-GFC regulation aims to prevent from occurring in the future.
As the domestic and global economy gradually recovered, so did business appetite for finance. Total corporate debt grew over 35% from the post-GFC low point of around £950bn in 2014 to around £1.3tn at end-2019.
Over this period, the aggregate stock of corporate debt remained resilient, but a tail of riskier, highly leveraged corporates emerged. These developments were discussed in the 2018 and 2019 Financial Stability Report boxes on leveraged loans, and risks to bank capital were addressed through the Bank’s annual stress tests. The FPC continues to monitor developments in this tail of riskier firms, including those financed by private equity.
The stock of corporate debt rose by 6% over 2020 H1 as many businesses, especially SMEs, faced severe cash flow issues due to lockdowns and reduced consumer demand. This led to a surge in demand for emergency finance, including government-backed loans like the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme.
Since 2020 H1, the level of corporate debt has remained broadly flat due to a series of shocks. The overlapping effects of Brexit, Covid-19, and the energy and supply shocks caused by Russia’s invasion of Ukraine have created a prolonged period of uncertainty, making businesses more cautious about borrowing for expansion and more focused on short-term liquidity.
Taking a longer-term perspective, while non-bank finance has contributed to all of the net increase in corporate debt since the 2008 crisis – its share of corporate debt has risen from around 40% to around 55% – this masks the strong bank loan growth from 2014 until a series of shocks hit starting in 2020 (chart 3.3, June 2024 FSR). Notably this strong bank loan growth occurred at a time when post-GFC regulations were being implemented. The share of non-bank financing of corporates continues to remain significantly lower in the UK than the US despite the post-GFC growth.
More generally, since 2008, the UK’s business finance landscape has diversified significantly, providing greater choice for borrowers (see Question 1). Alternative finance providers, such as peer-to-peer lenders, asset-based financiers, and the bond market, have grown in size and offer more flexible and tailored products. This more diversified financial ecosystem, where banks are just one of several sources of finance, can better meet the varied needs of businesses.
Looking forwards, the demand for finance from businesses is expected to evolve in line with the Bank’s broader economic baseline forecast in the coming years, described in the latest August 2025 Monetary Policy Report. And we expect that provision of finance to businesses will continue to be provided by a mixture of banks, non-bank financial institutions, and capital markets, with different providers being more competitive for different types of financing needs and business types.
The regulation of bank capital and liquidity is designed to ensure that banks can support the real economy by providing critical services – including lending – to households and businesses, in bad times as well as good. That is true of both the FPC’s assessment of the structural level of capital requirements appropriate across the financial system, and its regular assessments of the appropriate level of capital taking into account the financial cycle.
For example, the FPC’s judgement on the appropriate structural level of bank capital requirements is based on maximising net benefits to the economy, considering the balance of the macroeconomic costs of raising bank capital – stemming from slightly lower bank lending and investment in normal times – with the macroeconomic benefits of reducing the likelihood of banking crises. These crises can cause losses and subsequent cuts to consumption and investment and thereby have large and persistent scarring effects on long-term economic growth.
While the FPC judges the level of capital in the banking system to be broadly appropriate, it has been five years since the Committee’s last assessment of the structural level of capital requirements. Therefore, it will refresh that assessment and provide an update on this work in its December 2025 Financial Stability Report.
Maximising the net macroeconomic benefit also underlies the FPC’s quarterly decisions about the appropriate level of the countercyclical capital buffer – and the Committee worries as much about insufficient lending as it does about unsustainable lending. For example, as set out in its CCyB policy statement, when the FPC judges that there has been, or may be, a reduction in lending that is not warranted by changes in the macroeconomic outlook because banks are acting to defend their capital positions, it can cut the counter-cyclical capital buffer (CCyB) to encourage banks to continue (rather than reduce) lending to creditworthy households and business. The FPC has done this twice in the past, most recently in the wake of the COVID pandemic.
To inform this judgement, the FPC regularly monitors banks’ lending activity using quantitative data, survey evidence, supervisory intelligence, and intelligence from the Bank’s regional agents. Based on this, the FPC has judged that over recent years developments in bank credit conditions and lending provision have overall reflected the macroeconomic outlook, and the FPC has not found evidence of any unwarranted restriction in bank lending to defend their capital headroom over regulatory requirements and buffers.
It is challenging to evaluate precisely how post-GFC reforms have affected businesses’ ability and willingness to access bank finance, but it is clear that there was a build-up of debt, particularly in the commercial real estate sector, prior to the GFC, and that banks had insufficient capital and liquidity to absorb severe adverse shocks. Since then, the BCBS evaluation of post-GFC reforms, the continued importance of banks in providing finance to the economy, and the FPC’s assessment that credit conditions are evolving in line with the macroeconomic outlook suggest that the reforms have not impaired the aggregate supply of credit to the economy.
Indeed, the post-crisis reforms have supported sustainable financing of the real economy by the banking sector. Their benefits have been manifesting when shocks have hit the UK economy and UK banks were able to support the real economy, e.g. during Covid, the energy and supply shocks caused by Russia’s invasion of Ukraine, and the turbulence associated with the failures of Silicon Valley Bank and Credit Suisse.
As with any widespread reforms, their impact varies across business lines. As discussed in answers to other questions, some forms of lending – including the riskiest forms of lending – are likely to have been affected by the need for banks to take better account of the underlying riskiness of lending than in the period of excessive risk-taking before the GFC.
Business lending encompasses a vast range of different lending activities and types of companies. Different lenders are competitive in different types of lending and which type of lenders have an advantage varies based on a range of factors including the type of financing needed, the riskiness of the business, and taxes applied. There are some forms of business finance where banks have clear comparative advantages. For instance, banks provide the majority of SME direct lending over the last three quarters as banks generally have advantages in offering working capital and trade finance. Whereas non-banks can be better placed to provide term financing to corporates, particularly to riskier corporates that often fall outside of banks’ risk appetite. But even in those cases, banks still often provide the working capital to businesses. In total over 50% of corporate debt is market-based.
Banks often do not provide some services that private markets do. For instance, banks rarely provide venture capital (VC). Academic evidence suggests a superior ability by VC to allocate funding to promising and innovative startups[5]. PC is a good case study of private markets substituting banks, as some PC funds can directly compete with banks – both being able to offer loan products to corporates. In addition, PE investors may exert direct influence over the governance of sponsored companies by introducing superior management practices.[6] However, a challenge for private equity and PC funds in comparison to banks is that they are unable to create money (in the form of commercial deposits) and also do not have access to the balance sheet of central banks, making liquidity management much more difficult . Despite overall private markets growth to date, PC continues to make up a relatively small share of business finance in aggregate. Analysis set out in the June 2024 FSR, shows that less than 5% of MBF debt for UK firms originates from PC.
PC funds can have the following comparative advantages over banks in competing for certain types of business: a higher risk appetite (accompanied by higher returns) – which can allow for higher leverage or a willingness to finance more operationally challenging business plans – and the ability of private markets providers to offer flexible bespoke terms at a short notice. For instance, PC funds can provide alternative financing options for businesses seeking greater flexibility in loan terms (such as offering a mix of different types of debt or payment-in-kind) which is particularly useful for highly leveraged and lower-rated corporates who may not be within banks’ risk appetite. These funds typically have faster underwriting processes (useful under stressed conditions as there is no need for loan syndication), which can be important for financing certain activities such as leveraged buyouts. The December 2023 FSR sets out more detail on the role of PC funds.
As explained in the answer to other questions, we judge that post-GFC reforms have set capital requirements applied to banks to better reflect the riskiness of lending than in the period of excessive risk taking in the run up to the GFC. And in some cases, this may result in banks being less willing to offer financing (or offer financing at tighter terms) than they would have absent those reforms, especially to the often higher-risk types of borrowers for which private markets are a more suitable funding source. This complementarity of roles between banks and private markets along the risk spectrum of lending has beneficial implications for stability and sustainable growth.
Banks remain an important part of the provision of market-based finance, including through arranging, advisory and other support as set out in detail in the answer to Question 2. In particular, banks are major providers of leverage to private equity and credit and have as such accompanied and supported the growth of the private market ecosystem, in ways that have benefited their own income.
As outlined in the answer to Question 7, it is important for the banking system to be sufficiently resilient to support the economy in both favourable and challenging conditions. Post-GFC, work on the regulatory capital framework for banks, including regular stress testing and the active management of the countercyclical capital buffer, have strengthened banks’ capacity to absorb losses and sustain lending during times of stress, thereby supporting the UK economy and helping to avoid the adverse effects of deleveraging. In addition, the PRA's secondary competitiveness and growth objective (SCGO), which was added to the PRA's remit in 2023, has already made a significant difference to our policymaking as the PRA has proactively sought and identified opportunities to advance the SCGO and support economic growth.
Within this broader context, the Bank of England has already taken some steps to adjust the capital framework to support the provision of vital services by the banking sector, including lending to the real economy, to support sustainable economic growth. And it is undertaking further assessment of post-crisis reforms:
Capital levels in aggregate have remained broadly stable since the completion of the phase-in of the post- GFC bank capital framework in 2019. While the FPC judges the level of capital in the banking system to be broadly appropriate, it has been five years since the Committee’s last assessment of the overall level of capital requirements. The FPC has announced work to refresh that assessment and provide an update on this work in the December 2025 FSR.
The Bank of England works closely with regulators in other jurisdictions and actively engages with peers across a range of topics, including bank regulation, the rise of non-bank finance, and more specifically the dynamics within private finance. These engagements allow us to learn from others and to share our own perspectives. For example, on non-bank finance more broadly, we have taken note of and learned from the US moving to clear sovereign bond repos[7] - a reform that strengthens resilience.
There is also shared interest across jurisdictions in the role of private finance. In the US, the Federal Reserve has highlighted the growing interconnectedness between insurers and the intermediation chain of private finance, which is both highly complex and partially opaque. In the EU, policymakers are focused on the cross-border dimensions of private market growth, as underlined in their May 2025 Financial Stability Review, which stressed the increasing international scale of private funding flows and the links between private markets and banking sectors.
The Bank of England is working closely with international counterparts, both bilaterally and in multilateral forums, to share knowledge and learn from others’ experiences. If policy actions are ultimately judged to be necessary, the international nature of private markets means that coordination is important to support their effectiveness.
In addition, the FSB has been leading a multi-year work programme[8] to assess and address the vulnerabilities arising from NBFIs, including MMFs, OEF, margining practices and leverage. The FSB is now exploring vulnerabilities that may arise from the growing role of private finance in the financial system.
18 September 2025
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[1] See “Private equity financing & firm productivity”, “Synergizing ventures”, “Private equity portfolio company performance during the global recession”, “Private Equity Buyouts and Portfolio Company Performance Post-exit", and “The Heterogeneous Economic Effects of Private Equity Buyouts”.
[2] Please note that due to weaknesses in private markets data these estimates are from a variety of sources that are not all consistent and may represent an undercount. For more details see Financial Stability Report - July 2025 | Bank of England, Not-so-private questions − speech by Nathanaël Benjamin, SIFMA Research Capital Markets Fact Book – July 2025 and “The global drivers of private credit” by the Bank for International Settlement (BIS).
[3] Private equity financing and firm productivity, The productivity institute, Lavery et al (2024a) and Do private equity owned firms have better management practices?, American Economic Review, Bloom et al (2015).
[4] For more details see the “In focus – Emerging vulnerabilities at the intersection of the private equity and the life insurance sectors” chapter of the November 2024 FSR.
[6] See “Do Private Equity Owned Firms Have Better Management Practices?”
[7] See Enhancing the resilience of the gilt repo market | Bank of England.
[8] See last published FSB Work Programme for 2025 - Financial Stability Board