BANKS were today urged to keep lending, even to firms that are in breach of loan terms and are potentially at risk of going bust due to the coronavirus pandemic.
The latest intervention by the Bank of England and the Financial Conduct Authority comes as some banks are under fire for insisting on personal guarantees before they issue government-backed emergency loans.
The Prudential Regulation Authority, overseen by the Bank, the Financial Reporting Council and the FCA noted today that authorities have acted strongly to make sure lenders have the tools they need to get through the crisis.
A letter said: “Noting these actions, the FCA, FRC and PRA strongly encourage lenders and other parties to take into account these circumstances in responding to potential breaches of covenants arising directly from the Covid-19 pandemic and its consequences, given the common goal that the financial system should be a source of strength for the real economy during this challenging period.”
This is just the latest in a series of interventions from watchdogs advising – essentially ordering – banks to do whatever it takes to keep businesses going.
The assumption is that while the hit to the economy from the virus will be huge, it should be short lived. And that a bounce back afterwards will come quicker if businesses – and individuals – are still afloat once the bug is beaten.
Lenders have been asking business owners to put up collateral, perhaps in the form of a second home or shares before they get large loans.
The banking sector insists this is merely sensible, and that it is right to ask for some sort of guarantee before they hand out government backed loans of, say, £250,000.
One banker said: “If we put a pile of cash in the car park and say help yourself, the banks will go pop and the taxpayers will be left with an enormous bill that they cannot pay. You have to have some sort of assessment of risk.”
Banks insist they are following the rules laid down under the government’s coronavirus business interruption loans (CBIL).
CBIL is seen as one of the most vital parts of the pledge to protect business.
The joint statement today from the watchdogs said the packages it has put in place “have been evolving rapidly and could evolve further”. That suggests a change to the CBIL rules, a further relaxation, could come soon.
