BoE axes 2020 stress test and gives supervisory guidance

The Bank of England has axed this year’s stress-testing exercise and given firms additional supervisory guidance for how they should handle the effects of the coronavirus outbreak.

The decision to drop the stress tests was taken to “help lenders focus on meeting the needs of UK households and businesses”, the BoE said. It has also paused its biennial “exploratory” stress test to reduce the burden on staff at banks.

The BoE set out several supervisory guidelines in the same announcement. It notes the International Financial Reporting Standards (IFRS 9) require banks to forecast expected credit losses, which is highly difficult given the challenges with understanding the progression of the coronavirus and its economic impact. The BoE reminded firms that forward-looking estimates need to be “reasonable and supportable”.

The BoE said it would aim to reduce the burden on firms where possible, in areas such as requests for data. Supervision will focus on “the most important matters relating to financial stability, the safety and soundness of firms and protection of policyholders”.

Another action the BoE is postponing is its work investigating the risks related to open-ended funds.