ECB and Bank of England activate euro swap line

The European Central Bank and the Bank of England activated a standing currency swap line, stepping up their preparations for Britain’s possible departure from the EU later this month.

Under the swap agreement, the Bank of England will offer to lend euro to UK banks on a weekly basis and the ECB will receive pound sterling from the Bank of England in exchange for euro.

“The activation marks a prudent and precautionary step by the Bank of England 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.

As part of the same agreement, the Eurosystem, the monetary authority of the eurozone, would stand ready to lend pound sterling to euro area banks, if the need arises.

The BoE said: “The bank stands ready to provide liquidity in all major currencies.

“Today’s announcement is a prudent and precautionary step, consistent with the bank’s financial stability objective, to provide additional flexibility in the bank’s provision of liquidity insurance in coming weeks, supporting the functioning of markets that serve households and businesses.”

The ECB said it will continue to work with the Bank of England to monitor market conditions carefully.

Bank of England governor Mark Carney last week said that such liquidity measures were “part of normal contingency planning” and that commercial banks were functioning well.

The Bank of England carried out the same measure ahead of and following Britain’s referendum on leaving the EU in June 2016.

This helps banks and the wider financial industry keep ticking over during periods of market turbulence.

Similar lending was also carried out in 2008 during the global financial crisis.

Britain is on course to leave the EU on March 29, although there has been increasing talk of a possible delay.

Ahead of Brexit, authorities in Britain, including the Bank of England, have also agreed with the US to maintain how multi-trillion-dollar financial transactions are carried out between the two countries.

The agreement concerns trades of derivatives – securities whose value is based on an asset such as currencies, stocks and commodities.