RBS Royal Bank of Scotland Group PLC

By Max Colchester, Jason Douglas and Margot Patrick 

LONDON--The Bank of England Tuesday declared an end to years of financial-crisis banking reforms, saying U.K. banks had broadly done enough to strengthen their balance sheets.

The central bank said that capital requirements for its once crippled banking sector wouldn't continue to creep up in coming years. Instead, it set a capital target that most U.K. lenders have nearly already hit.

"The system is in sight of where it needs to be," said Bank of England Governor Mark Carney during a news conference. "There is no new wave of capital regulation coming."

The softer tone from the Bank of England comes as it feels more confident it can safely wind-down broken banks and avoid tapping taxpayers for bailouts. Following the financial crisis, U.K. regulators moved to shore up the country's battered banking system with a wave of measures. A key question was how much equity and bonds banks needed to hold to absorb potential losses.

On Tuesday, Mr. Carney said British banks needed to hold Tier 1 equity of 11% of risk-adjusted assets by 2019. This is slightly above the international average, he said, but remains well below the amount some regulators predicted banks would need to hold in the wake of the crisis.

British banks have recently undertaken a broad lobbying campaign to push regulators to loosen their rules, or risk damaging the U.K.'s attractiveness as a financial center. Mr. Carney hit back at complaints that the stream of new regulations was unpredictable and hindering banks' ability to pump credit into the economy. "Our objective has never been to raise capital without limit," he said.

Mr. Carney's pledge was welcomed by markets as British bank stocks rose. Barclays PLC led the pack with shares up nearly 5% in early-afternoon trading.

The Bank of England can still tweak capital rules depending on the strength of the economy. Officials signaled they will consider raising a special capital buffer in March. A 1% increase would be equivalent to GBP10 billion ($15 billion) of extra capital. But the central bank said some of that would come from reallocating capital already held by banks.

The announcement came as the Bank of England issued the results of its latest U.K. bank stress test. The Royal Bank of Scotland Group PLC and Standard Chartered PLC both failed aspects of the balance-sheet check but the central bank stopped short of forcing them to raise more capital.

The stress test saw a hypothetical scenario where the eurozone and Chinese economies contract, commodity prices crash and banks wrestle with the default of a handful of major trading partners. Meanwhile, fines for bad behavior shot up. Two of the seven banks tested, RBS and Standard Chartered, were singled out for weaknesses by the Bank of England but have already taken action to strengthen their balance sheets, the central bank said Tuesday.

Seven British based banks needed to maintain a ratio of core Tier 1 equity to risk weighted assets of 4.5% to pass the test but were also assessed individually. Banks that fell short would have needed to raise equity or further shrink their balance sheets. The banks tested were RBS, Barclays, HSBC Holdings PLC, Lloyds Banking Group PLC, Nationwide Building Society, Santander U.K. and Standard Chartered.

RBS didn't meet an individualized capital requirement set by the regulator.

The central bank said that the state-controlled lender had already planned to issue bonds which would address any shortfall. Asia-focused Standard Chartered didn't hit a key measure but still passed the test, the Bank of England said. The bank has already outlined plans to raise $5.1 billion in equity and restructure its business.

The results of the stress test were published alongside the Bank of England's twice-yearly assessment of the risks facing the financial system. Officials cited potential threats from certain corners of the real-estate market and financial-market fragility, but concluded the risks weren't strong enough to warrant any new policy actions.

Write to Max Colchester at max.colchester@wsj.com, Jason Douglas at jason.douglas@wsj.com and Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

December 01, 2015 09:34 ET (14:34 GMT)

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