* Climate stress test for 2021 under review
* Work on liquidity at open ended funds paused
* BoE to consider impact of loan-loss accounting rule
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By Huw Jones and David Milliken
LONDON, March 20 (Reuters) - The Bank of England cancelled
this year's stress test of major banks on Friday and said it may
be hard to implement new global capital rules on time given the
focus now on supporting lending to customers hit by the
coronavirus epidemic.
The decision to scrap the stress test of the country's top
eight banks followed a decision by the European Union to cancel
its planned health check of leading lenders, which had also
included top UK players such as Barclays and HSBC.
"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," the Bank of
England (BoE) said.
Last week the British central bank announced that banks
could release all the capital they hold in a special "counter
cyclical" buffer to support loans worth up to 190 billion pounds
($223 billion).
The BoE's Prudential Regulation Authority (PRA), which
supervises banks, said on Friday that new capital rules from the
global Basel Committee due to be phased in over coming years may
also have to be pushed back.
"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," the BoE said.
Banks in the euro zone in particular have lobbied hard to
push back the remaining package of Basel capital rules and the
EU has yet to approve laws to implement it.
Stephen Jones, CEO of banking industry body UK Finance, said
the measures would ease operational burdens and that the BoE had
emphasised capital and liquidity buffers should be used to
support the economy during the temporary coronavirus shock.
But Ashurst regulation lawyer Tim Cant said Britain may need
to go further and adopt German regulator Bafin's more flexible
approach. Bafin is considering allowing German banks to cut the
"Pillar 2" buffer set by regulators to supplement the core
buffer.
The BoE also sought to ease pressure on lenders by delaying
work on new rules. An assessment of liquidity at banks, which
had been due to be completed mid 2020, has been paused until
further notice, and a planned test next year of the ability of
banks to cope with climate change is under review.
ACCOUNTING RULE
Banks have asked regulators for relief from a new accounting
rule know as IFRS 9 that forces them to make provisions for
expected losses on loans before they are actually incurred.
Due to the coronavirus epidemic, Britain is facing a sharp
downturn, which typically increases the number of loans turning
sour, raising the prospect of banks having to find more capital
and suffering further hits to profits during an economic crisis.
"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," the BoE said.
Given the sudden onset of the virus, making reliable
forward-looking judgments on possible losses from loans is "very
challenging", it added
If lenders make such judgements, they would note the
"temporary nature of the shock" and fully take into account the
significant measures, such as repayment holidays, that have been
announced by the government to support the economy, it added.
The BoE's Financial Policy Committee, which has powers to
order regulators to make changes to financial rules, is due on
Tuesday to make a statement following its latest quarterly
meeting.
The BoE also said it would postpone its joint survey with
the Financial Conduct Authority into open-ended funds which had
been expected to report back in June and propose rule changes.
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, several property funds suspended
themselves after saying they could no longer value their real
estate assets properly due to coronavirus uncertainty.
($1 = 0.8513 pounds)
(Reporting by David Milliken and Huw Jones; editing by Pravin
Char and Mark Potter)
