BoE allows banks to tap capital cushion during coronavirus

LONDON, March 11 (Reuters) - The Bank of England told banks on Wednesday they can tap one of their capital buffers to maintain lending during the coronavirus epidemic, but warned they must not use the cash for bumping up bonuses or dividends.

The BoE's Financial Policy Committee said that it was cutting the so-called counter cyclical capital buffer (CCYB) to 0%, reversing a decision last year to raise it from 1% to 2% by the end of 2020.

The release of the buffer will support up to 190 billion pounds of bank lending to businesses, equivalent to 13 times banks’ net lending to businesses in 2019, the BoE said.

"The FPC expects to maintain the 0% rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest," the BoE said in a statement.

"Although the disruption arising from Covid-19 could be sharp and large, it should be temporary."

The BoE's Prudential Regulation Authority, which supervises banks, said it expects lenders not to increase dividends or bonuses in response to releasing the CCYB.

Last year's stress test of leading banks in Britain showed that lenders could still provide loans to businesses even during a prolonged economic downturn "as well as falls in asset prices much larger than experienced in recent weeks", the BoE said. (Reporting by Huw Jones, editing by Estelle Shirbon)