By Iain Withers and Huw Jones
LONDON (Reuters) - Britain's banks have asked the Bank of England to scrap this year's stress test of lenders and to soften rules to help them cushion expected losses as the coronavirus pandemic hits their staff and customers, banking sources said on Friday.
"It would be stupid to run a stress test during a stress," a senior banker told Reuters. "Let's concentrate on this situation rather than a hypothetical one."
The central bank's Financial Policy Committee, which monitors risks in the financial system, typically agrees scenarios for the annual test of banks' resilience at its first quarter meeting and publishes them on March 24.
Results usually come out at the end of year.
Top bankers met Britain's finance minister Rishi Sunak and Bank of England Governor Mark Carney on Thursday to discuss action to help smaller businesses hit by coronavirus. Andrew Bailey, who takes over from Carney on Monday, was present.
A second banking source said scrapping the stress tests was one of several support measures discussed with the central bank.
The BoE declined to comment on the stress test. The Treasury said it was a matter for the BoE.
After allowing banks to fully tap a special buffer of capital to support lending this week, the central bank's Financial Policy Committee is expected to review whether to go ahead with the stress test.
The European Union regulators on Thursday said the bloc's own test that was under way had been postponed until 2022.
Banks have also asked Sunak and Carney for relief from an accounting rule that forces them to provision early for loans at risk of turning sour, the two sources said.
Bankers are concerned a mandatory international accounting rule, known as IFRS 9 and which was introduced in 2018, will force them to book bad loans earlier than in previous crises, likely exacerbating early bank losses and hits to capital.
Sunak and Carney were told it could deter lenders from providing necessary relief to struggling businesses and consumers, if the banks feared hefty provisions.
"Don't force banks to do things that are unhelpful ... How do you avoid that double whammy?" the banker said.
The BoE has repeatedly said the British banking sector is holding enough capital.
Banks are already being forced to adapt to how they operate to minimize potential infections from the virus.
HSBC (L:HSBA) told all staff in Britain on Friday to avoid traveling between its offices, practice social distancing measures and work from home where possible.