Bank of England cancels stress tests for UK’s biggest lenders

The Bank of England will postpone all non-critical supervisory work in the City and review plans to run the banking sector’s first-ever climate stress tests later this year.

The Bank of England is scrapping its annual stress tests for the UK’s largest lenders this year, saying bank resources should be aimed at supporting households and businesses during the coronavirus outbreak.

It is the first time that the annual health check has been cancelled since it began in 2014. The tests, which were developed after the 2008 financial crisis, determine whether the UK’s biggest banks could keep lending during a recession.

“The decision to cancel the 2020 stress test for the eight major UK banks and building societies is intended to help lenders focus on meeting the needs of UK households and businesses via the continuing provision of credit,” the Bank of England said.

Regulators are trying to ease the burden on banks, which are being asked to package billions of pounds worth of low-cost loans to UK businesses and ease the debt burden for households by offering mortgage holidays and extending credit card limits.

The central bank said it would also postpone all non-critical supervisory work in the City and review plans to run the banking sector’s first-ever climate stress tests later this year. It will also delay its survey of open-ended funds after the collapse of Neil Woodford’s investment empire and monitor new accounting rules that force banks to log their expected loan losses upfront.

The Bank said the measures “will provide flexibility to help firms … maintain their safety and soundness and deliver the critical functions they provide to the economy” during the coronavirus outbreak.

The decision to cancel the annual stress tests affects major lenders, including Royal Bank of Scotland, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander, Nationwide building society and Virgin Money UK, which will no longer have to devote resources towards their preparation.

It follows a similar decision by the European Banking Authority, which last week said that it would delay its tests that take place every two years by a year so that banks could focus on the coronavirus challenges ahead.

The banking industry lobby group UK Finance welcomed the Bank of England’s decision and said major lenders were in a strong position to cushion the blow: “As demonstrated by the 2019 stress tests, the UK banking system has significantly enhanced its financial resilience over the past decade and now has much higher levels of capital and liquidity.

“UK Finance will continue to work closely with the regulatory authorities and government to ensure firms’ ability to protect and continue serving their customers.”

– The Guardian UK