Bank of England actions to combat coronavirus downturn

Reuters: The Bank of England promised 200 billion pounds of bond purchases [Covid Corporate Financing Facility (CCFF)] and cut its key interest rate to 0.1% in a second emergency move in just over a week to try to mitigate the hit to Britain’s economy from the coronavirus outbreak.

Cancellation of the Bank’s 2020 annual stress test – the annual cyclical scenario (ACS): This is in line with the 11 March 2020 measures, which included a decision by the FPC to reduce the UK countercyclical buffer (CCyB) rate to 0% of banks’ exposures to UK borrowers with immediate effect. The Financial Policy Committee (FPC) and the Prudential Regulation Committee (PRC) expect that all elements of banks’ capital and liquidity buffers can be drawn down as necessary to support the economy through this temporary shock.

Amendments to the biennial exploratory scenario (BES) timetable:

Liquidity: The Bank had been due to publish the results of the 2019 BES on liquidity in mid-2020. In order to alleviate burdens on core treasury staff at banks, the Bank has paused this exercise until further notice.

Climate risk: The Bank published a discussion paper on the 2021 BES on the financial risks from climate change on 18 December 2019. The Bank will take stock of the responses as well as the evolving situation with a view to announcing the way forward for this exercise in the summer.

The Bank continues to consider the potential interaction of Covid-19 with IFRS9, including through discussion with relevant bodies domestically and internationally, and expects to provide further guidance to firms regarding our approach next week, with a view to assisting firms to adopt consistent approaches in the face of the prevailing uncertainty.

Postponement of the joint Bank / Financial Conduct Authority (FCA) survey into open-ended funds

Basel 3.1: The Government has announced that it will be introducing legislation that will enable the implementation of Basel 3.1 in the UK and HM Treasury anticipates a central role for UK regulators in designing and implementing Basel 3.1 requirements that will apply to firms. 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 PRA will advise the government on the legislative approach accordingly.

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