The central bank conducts tests every year on eight major banks and building societies to see how prepared they are for a shock to the financial system, such as the current Covid-19 outbreak.
The institutions tested are Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander, Standard Chartered.
Its latest stress test in 2019 showed 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.
Focus on supporting UK
Announcing its decision, the Bank of England said the move was “intended to help lenders focus on meeting the needs of UK households and businesses via the continuing provision of credit”.
It added: “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.”
The bank also noted that lenders should not be automatically moving those borrowers who use mortgage repayment holidays under its stage two expected capital loss reporting.