(Adds news conference, reaction)
By Huw Jones
LONDON, March 11 (Reuters) - The Bank of England told banks
on Wednesday they can tap one of their capital buffers to
maintain lending during the coronavirus epidemic, but warned
they must not use the cash for bumping up bonuses or dividends.
Insurers were also offered relief on the long-term phase-in
of new capital rules as part of a broader package that included
a cut in interest rates to a record low of 0.25%.
The BoE's Financial Policy Committee (FPC) said that for
banks it was cutting the so-called counter-cyclical capital
buffer (CCYB) to 0%, reversing a decision last year to raise it
from 1% to 2% by the end of 2020.
The CCYB is a buffer that is built up in good times for
tapping in downturns or market shocks to maintain lending. It is
the second time it has been released -- the first was just after
Britain voted in June 2016 to leave the European Union.
The release of the buffer will support up to 190 billion
pounds of bank lending to businesses, equivalent to 13 times
banks' net lending to businesses in 2019, the BoE said.
"This is a big package," Bank of England Governor Mark
Carney told a news conference.
Unlike in the global financial crisis a decade ago, when
British taxpayers had to bail out lenders, banks have built up
resilience over the past decade and are now part of the solution
to coronavirus, Carney said.
"It's a totally different discussion from what we were
having a decade ago," added Andrew Bailey, who takes over as
governor from Carney next Monday.
The FPC said it expects to keep the CCYB at 0% for at least
a year, so that any future increase would not take effect until
March 2022 at the earliest.
Bailey, who currently heads the Financial Conduct Authority,
said the markets watchdog expects Britain's banks to treat its
customers fairly during the coronavirus epidemic.
Shares in HSBC, Lloyds Banking Group and
Barclays and Royal Bank of Scotland rose by up
to 2%.
Several banks have already announced measures to help
customers hit financially by coronavirus, which Carney welcomed.
"The package of measures will further strengthen the ability
of UK banks to continue to support our customers through the
COVID-19 crisis," Lloyds said in a statement.
Andrew Kail, head of financial services at consultants PwC,
said the prospect of low interest rates for longer hitting
banks' revenues means they may have to consider more radical
ways of shoring up their business.
The BoE's Prudential Regulation Authority (PRA), which
supervises banks, said it expects lenders not to increase
dividends or bonuses in response to releasing the CCYB.
Any decision taken by banks regarding bonuses must be
"consistent with the maintenance of a sound capital base", it
added.
Last year's stress test of leading banks in Britain showed
that lenders could still provide loans to businesses even during
a prolonged economic downturn "as well as falls in asset prices
much larger than experienced in recent weeks", the BoE said.
Banks already hold a trillion pounds of liquid assets that
enable them to meet their obligations for months, it added.
The PRA said it would also be willing to accept applications
from insurers to recalculate the relief they were getting as
part of a long-term phase in of their capital rules.
"In any application, the PRA expects firms to be able to
demonstrate that a material change in risk profile has
occurred," the PRA said.
(Additional reporting by Sinead Cruise, Editing by Estelle
Shirbon and Catherine Evans)