BoE announces stress test cancellation

Jake Carter

March 20, 2020

BoE Money and Credit - mortgage approvals

The Bank of England and Prudential Regulation Authority has announced the cancellation of stress tests for banks and building societies for this year.

According to the bank, the decision is intended to help lenders focus on meeting the needs of UK households and businesses via the continuing provision of credit.

The central bank has also paused other assessments on liquidity and climate risk amidst the coronavirus pandemic.

It added that the decision is in line with the 11 March 2020 measures, which included reducing the UK countercyclical buffer rate to 0%.

The bank draws on the 2019 stress test as an indicator of the current economy, which showed that the UK banking system was resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, it outlined.

Furthermore, the planned survey covering around 300 funds has been delayed until further notice, with a subsequent impact on the Financial Conduct Authority consultation that would have followed.

The Prudential Regulation Authority has said that it “reminds firms that forward-looking information used to incorporate the impact of Covid-19 on borrowers into the expected credit loss (ECL) estimate needs to be both reasonable and supportable for the purposes of IFRS9.

“Given the sudden onset of the virus, the PRA believes that there is very little such information available as yet, and regards the preparation of reliable and detailed forecasts as very challenging currently.

“In the event firms believe such forecasts can be made, the PRA expects firms to reflect the temporary nature of the shock, and fully take into account the significant economic support measures already announced by global fiscal and monetary authorities.”

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