The Bank of England (BOE) on Friday, March 20, 2020, canceled this fiscal year’s stress test of its major banks and declared that the implementation of new global capital rules would be difficult since the lenders have been devastated by coronavirus outbreak.
Cancelation of Banks’ Evaluation
The central bank of England, BOE, following a decision by the European Union (EU), has decided to cancel its routine yearly checkup of the financial health of the country’s top eight banks including the country’s leading lenders such as Barclays and HSBC.
Last week, the British central bank had issued an order to the country’s banks to release all the capital assets they hold in a special “counter-cyclical” buffer for supporting loans valued at 190 billion pounds.
Citing the severe impact of the virus epidemic on its economy, the BoE said, “The recent 2019 stress test 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, combined with large falls in asset prices and a separate stress of misconduct costs.
In addition to this, the Prudential Regulation Authority (PRA) of the central bank, which supervises banks, said on Friday that new capital rules directed by the global Basel Committee or the upcoming financial years had to be postponed due to the virus impact. Meanwhile, the BOE explained, “The PRA acknowledges that the existing Basel timetable may prove to be challenging, and is coordinating internationally to ensure that implementation will happen alongside other major jurisdictions.”
Delay the Implementation of New Global Rules
England banks have urged the country’s regulators to exempt them from the new accounting rules known as IFRS 9 since they have expected several losses of bad loans if the policy is implemented. Meanwhile, the BoE’s Financial Policy Committee, which regulates the changes in financial rules, is expected to deliver statement following its latest quarterly meeting on Tuesday.
The central bank also had to call off its joint survey with the Financial Conduct Authority regarding the issues of open-ended funds which was set to report back in June 2019. Reuters reported, “The survey was partly triggered by the suspension and later closure of a flagship fund run by then star stock-picker Neil Woodford after it was unable to meet daily redemption requests, trapping hundreds of thousands of investors.”
Earlier this week, the evaluation and assessment of real estate assets funding of the country were suspended since the virus outbreak had made the determining of the value of properties funding difficult.
With the rapid rise of coronavirus spread, Britain is currently facing a sharp downturn of its economy, which has led to the increase in the rate of bad loans of the banks and search for more capital funding of these lenders.
The BOE explained, considering the sudden onset of the virus, that it would be “very challenging” to construct a positive outlook on the expected losses from loans of the country. The BOE added, “The bank continues to consider the potential interaction of COVID-19 with IFRS 9…. and expects to provide further guidance to firms regarding our approach next week.
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