U.K. Banks Press BOE on Fresh Capital Relief to Weather Virus

(Bloomberg) --

Lenders in the U.K. are pressing the Bank of England for further relief on capital rules to help weather the coronavirus pandemic that’s devastating the British economy.

Some firms are seeking the blessing of the BOE’s regulatory arm to soften the buffers they hold on top of the global minimum, according to people familiar with the matter. The cushion, known as Pillar 2B, varies by company and can be used in times in crisis, according to the BOE website.

Banks are holding individual discussions with the regulator about redeploying this capital, according to the people, who asked not to be named because the talks are private. Lenders expect a decision will be taken in the next few days.

A spokesman for the BOE declined to comment. The central bank has called on lenders to support the economy through the crisis, pushing them to scrap their dividends to ensure they can offer loans even as borrowers begin to struggle. U.K. and European authorities have also pressured firms to curb bonuses for senior executives in order to safeguard their lending power.While banks are co-operating with many of the regulator’s requests, they are pushing for some concessions to help the industry cope.

Last month, the BOE’s Prudential Regulation Authority cut the banks’ counter-cyclical buffer, which is built up in periods of strength and designed to release capital in downturns. The central bank has also canceled this year’s stress tests and signaled that lenders shouldn’t race to set aside provisions for bad loans while the pandemic disrupts normal life.

The BOE can tell firms to raise or lower some capital cushions beyond the levels set globally under the Basel framework. If these extra safety nets are used up in times of stress, the regulator expects them to be built back up “over a reasonable period of time,” its rules state.

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