Bank of England cancels annual stress tests of banks amid coronavirus outbreak

Source: Xinhua | 2020-03-21

The Bank of England (BoE) announced Friday that it has decided to cancel this year's stress tests for the eight major British banks and focus on helping lenders meet the needs of households and businesses by offering continuing credit.

In a statement issued by the BoE, the cancellation is in line with the March 11 measures, "which included a decision by the Financial Policy Committee to reduce the UK countercyclical buffer rate to 0 percent of banks' exposures to UK borrowers with immediate effect."

British regulators expect that "all elements of banks' capital and liquidity buffers can be drawn down as necessary to support the economy through this temporary shock," said the central bank.

According to the BoE, 2019's stress test showed that the British banking system was resilient to deep simultaneous recessions in the British and global economies, which "are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs."

Today's announcement also included a number of measures aimed at alleviating operational burdens on related firms and financial market infrastructures amid the COVID-19 outbreak.

These measures, including delaying the planned survey covering some funds, will provide flexibility to help these companies to "maintain their safety and soundness and deliver the critical functions they provide to the economy," said the statement.

The BoE announced Thursday the reduction of its base rate from 0.25 percent to 0.1 percent and the increase of holdings of British government and corporate bonds by 200 billion pounds (about 235 billion U.S. dollars).

Last week, the central bank slashed its base interest rate from 0.75 percent to 0.25 percent as part of a package of measures to cushion the impact of COVID-19.

Meanwhile, the BoE and the British Treasury recently announced its COVID Corporate Financing Facility (CCFF), offering additional help for firms to bridge through COVID-19-related disruption to their cash flows.

"The CCFF will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy," said a statement, adding that "it will help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows."

British Chancellor of the Exchequer Rishi Sunak promised this week he was prepared to take "whatever action necessary" to tackle the coronavirus crisis.

Sunak said Tuesday the government would provide loans worth 330 billion pounds (388 billion U.S. dollars) to businesses to support them through this difficult time, as the coronavirus outbreak escalates in the country.