What we think the Bank of England's Financial Stability Report means for Corporate Treasurers

• UK financial system remains resilient
• Volatility is here to stay
• Operational resilience should be a core focus for treasurers

The Bank of England's July Financial Stability Report offered reassurance that the UK financial system remains resilient. Banks remain well capitalised, liquidity is strong, and the core financial infrastructure continues to function as intended despite an increasingly uncertain global environment.

However, resilience should not be mistaken for predictability. The report highlights that while the financial system is better equipped to absorb shocks than it has been in recent decades, the operating environment for treasury teams is likely to remain volatile. Geopolitical tensions, elevated asset valuations, evolving cyber threats, and rapid technological change have the potential to affect all aspects of treasuries’ day-to-day business.

The report backs up our view that liquidity remains paramount. The banking system has the capital and liquidity to support the wider economy, even during periods of stress, but the Bank highlighted that market conditions have been changing, and will continue to change, and markets may move more rapidly than ever before in periods of heightened uncertainty. Treasury teams should therefore continue to prioritise liquidity planning, regularly reviewing cash forecasts, and making sure they have a variety of routes to market before such conditions arise, rather than scrambling for access when they do.

The organisations that perform best during periods of market disruption are rarely those with the most sophisticated forecasts – they are those that have already planned for multiple scenarios. We think this is the time to trust your treasury policy.

One of the strongest emerging themes from the report is operational resilience. While AI undoubtedly will bring advantages to treasury teams, the report highlights the heightened cyber risk associated with its adoption.

Payment processes, banking connectivity, treasury management systems, market data providers, and third-party service providers all form part of the treasury operating model. As these ecosystems become more interconnected, operational resilience becomes just as important as financial resilience.

During periods of market uncertainty, organisations with diversified access options are generally better positioned than those relying on a narrow range of options. For the most successful treasury teams, resilience is built long before it is tested.

Uncertainty is becoming part of business as usual, rather than an occasional and temporary disruption. The Bank is far from signalling an imminent financial crisis. However, it is recognising that the sources of risk are becoming more diverse and increasingly interconnected. For treasury teams, we think this means they need to move away from trying to foresee the next shock and towards ensuring they can respond quickly when conditions change: maintaining sufficient liquidity, maintaining operational resilience, and having trusted partners and service providers.

Ultimately, resilience should be a key tenet of treasury strategy.

How we're thinking about it

TreasurySpring recently submitted a response to the DMO’s consultation on expanding and deepening the UK Treasury bill (T-bill) market, and will be engaging with the gilt-repo market-functioning review through the Q3 FPC checkpoint and the consultation expected in Q1 2027.

We were pleased to see the Financial Policy Committee and Prudential Regulation Authority's proposals to ease the leverage ratio framework – a package that would reduce the leverage ratio large UK banks need to maintain by around 20 basis points in aggregate. It addresses the balance-sheet capacity constraint that we identified in our DMO consultation response as a key brake on dealers' willingness to hold and make markets in short-dated sovereign paper, supporting intermediation across the gilt and T-bill curve. According to the Financial Times, Morgan Stanley bank analysts have forecast these reforms will give the main UK lenders £270bn of additional balance sheet capacity.

Put simply, the plumbing behind your cash instruments is being deliberately reinforced. Now is the time to widen your routes to market.

The full report from the Bank of England is available here.

*TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice.