The Bank of England (BoE) and the European Central Bank (ECB) have decided to activate a standing swap line, allowing the BoE to lend euros to UK banks on a weekly basis.
According to the BoE, the UK’s financial sector is well-prepared to cope with a no-deal Brexit, as it took further steps to ensure stability amid political uncertainty.
The new arrangement will ensure that lenders have enough liquidity, with the ECB receiving pound sterling from the BoE in exchange for euros, while the BoE will be able to lend euros to UK banks from as early as next week.
The activation from the BoE marks a “prudent and precautionary step to provide additional flexibility in its provision of liquidity insurance, supporting the functioning of markets that serve households and businesses”, the ECB said in a statement.
“The swap line between the ECB and the Bank of England is part of a network of standing arrangements with four other central banks, including the Bank of Canada, the Bank of Japan, the Federal Reserve, and the Swiss National Bank. These standing swap lines were agreed in October 2013 and replaced a set of temporary arrangements. Liquidity providing arrangements contribute to global financial stability.”
As part of the same agreement, the Eurosystem is prepared to lend pound sterling to euro area banks, if the need arises.
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