Category: Financial Stability

Bond financing conditions and economic activity in the UK: aggregate and firm-level evidence

Eduardo Maqui, Nicholas Vause and Márcia Silva-Pereira

In recent decades, the corporate bond market has grown from a relatively niche source of finance for UK corporations to a central pillar alongside bank loans. This transition raises an important question: as with bank credit conditions, have supply conditions in the corporate bond market come to significantly affect UK economic activity? Our recent research suggests the answer is a resounding yes. We show that a measure of corporate bond financing conditions − the Excess Bond Premium (EBP) − not only anticipates macroeconomic outturns in the UK, but also influences investment by UK firms, especially those that are highly leveraged and more reliant on bond finance.

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Monetary policy, state-dependent bank capital requirements and the role of non-bank financial intermediaries

Manuel Gloria and Chiara Punzo

The expansion of non-bank financial institutions (NBFIs) is transforming the financial landscape and introducing fresh challenges for financial stability and oversight at the same time as creating opportunities. Using a dynamic stochastic general equilibrium (DSGE) model, we find that while NBFIs may enhance long-term welfare for households and entrepreneurs in normal conditions, their greater role also heightens vulnerabilities to severe shocks in the financial system. Greater NBFI activity boosts competition in the financial sector, leading to more efficient resource allocation. A working paper detailing these results was recently published.

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Measuring banking resilience to adverse outcomes

Giovanni Covi and Tihana Škrinjarić

The ability of the banking system to absorb shocks and continue providing vital financial services is important because it underpins the smooth functioning of the broader economy. We propose a methodology that serves as a valuable tool for monitoring banking system stability. It quantifies the resilience of the banking system given the prevailing macrofinancial risk environment. The main measure we derive is the probability that one or more banks will fail to meet regulatory capital or liquidity requirements within a given horizon.

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The Bank Underground Christmas Quiz 2025

Image of the Bank of England during Winter with partial snowfall.

Bank Underground is about to take a break for the festive season. In keeping with tradition, we are pleased to present the annual Bank Underground Christmas Quiz! This year, it’s been prepared with the kind assistance of the Bank of England’s Archive team. We hope you enjoy testing your knowledge of the Bank’s history, especially how it has marked Christmas in years past. We wish our readers a very happy festive season!

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Who owns the buildings where Britain shops, works – and stores its data?

Katherine Blood

We have developed a new measure tracking UK commercial real estate (CRE) ownership at property level, mapping the latest investor landscape at end-2025 Q3 and its shift since the pandemic. Our estimates show a diversified, international base: overseas investors hold around one third of UK CRE, while private equity funds own 8% after post-pandemic growth. Investor-owned CRE has tilted towards warehouses, logistics, rental housing and properties serving innovation-led sectors – like data centres and life-sciences. Why does this matter? CRE ownership shapes how shocks play out – affecting refinancing waves, upgrade costs and valuation swings. History shows the sector has seen boom-bust cycles before and contributed to financial stability challenges in the UK and abroad.

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The debt trigger: how household debt can amplify the effect of rising rates

Tuli Saha and Alexandra Varadi

High levels of household indebtedness can amplify negative economic shocks, if highly indebted mortgagors make larger cuts to spending in response to them or are more vulnerable to defaulting on mortgage payments adding to bank losses. These are tail risks which can pose significant financial instability. In this post, we present quantitative evidence on these risks using a local projection model. We find that when the share of highly indebted households increases, aggregate consumption drops more sharply and mortgage arrears increase more in response to interest rate shocks. Our work highlights the importance of managing risky lending through macro and microprudential policy. And it highlights how debt burdens can interact with the monetary transmission mechanism.

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War and payment innovation: the adoption of paper currency in Britain

David Rule

Digital currencies and stablecoins have increased interest in how new forms of money are adopted. Looking to three episodes from the 1690s to the First World War, this post considers how paper currency replaced coin in Britain, an historical example of adoption of new money. The underlying drivers were not technological changes but wars, leading to actual or feared shortages of coin, and a need to take specie out of internal circulation in order to meet overseas outflows. The public authorities took the initiative and created trust successfully in the new money. This is the first of a series of planned posts by Bank staff on past payment innovations.

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Regulatory independence and financial stability

Rhiannon Sowerbutts

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Financial System Theme which focuses on the shifting landscape and new risks confronting financial policymakers.

Institutions matter. And in the world of economics, few institutions are as prized as independent central banks. Monetary policy independence, many argue, allows central banks to look through electoral cycles to prioritise long-run price stability. But what about price stability’s younger, less glamorous cousin – financial stability? In a recent paper, we develop a measure of regulatory and supervisory independence (or the lack of it) and examine what are the implications for financial stability. Our findings underline the critical importance of robust, independent regulatory frameworks to safeguard financial systems and show that just as with monetary policy – independence matters for regulation and supervision too.

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The gathering swarm: emergent AGI and the rise of distributed intelligence

Mohammed Gharbawi

Rapid advances in artificial intelligence (AI) have fuelled a lively debate on the feasibility and proximity of artificial general intelligence (AGI). While some experts dismiss the concept of AGI as highly speculative, viewing it primarily through the lens of science fiction (Hanna and Bender (2025)), others assert that its development is not merely plausible but imminent (Kurzweil (2005); (2024)). For financial institutions and regulators, this dialogue is more than theoretical: AGI has the potential to redefine decision-making, risk management, and market dynamics. However, despite the wide range of views, most discussions of AGI implicitly assume that its emergence will be as a singular, centralised, and identifiable entity, an assumption this paper critically examines and seeks to challenge.

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