The PRA have released a statement and Q&A advising banks that they should use their capital and liquidity buffers to support customers and the UK economy.
Banks are required to have substantial liquidity buffers – cash and short-term bonds in order to repay short term obligations as they fall due, at a level well over 100%.
In the Q&A, the PRA have stated “During this time of Covid-19 related disruption to the economy, the PRA expects banks to focus on continuing to service and support their customers and clients. Banks are expected to use their liquidity buffers in doing so, even if it means LCR ratios go significantly below 100%.”
The guidance should further reassure lenders they will not face any sanctions or penalties if they continue to operate for the period with a much lower level of liquidity that would be expected during normal times.
The PRA added “A reduction in the LCR ratio, including below 100%, in and of itself will not trigger any automatic restrictions.”
Furthermore, the PRA stated there is no requirement for lender to rebuild their liquidity buffers in a specific timeframe, therefore giving banks enough time to re-establish the buffers during this time of crisis.
To access the full Q&A, please click HERE.