Bank of England starts euro lending facility to help cushion Brexit risks

Font Size


THE BANK OF England (BoE) is launching a new liquidity facility in euros in the final few weeks before the scheduled date for Britain to leave the European Union.

The bank said Tuesday the weekly auctions from March 13 are a “prudent and precautionary step” to allow UK lenders to access euro funding. The bank already offers dollar auctions on a similar basis.

Although the prospects seem to be fading for a no-deal Brexit on March 29, the BoE’s Financial Policy Committee (FPC) said “significant market volatility” is to be expected in this scenario.

Still, the central bank reiterated that the core banking system is strong enough to continue functioning properly and wouldn’t amplify the disruption.

The FPC, which was set up after the 2008 crisis to spot risks to financial stability, said that European Union households and businesses could struggle to access some banking and market services in a no-deal withdrawal, ultimately raising the cost of doing business for banks that could ripple back to the UK.

For example, while UK and global banks have set up new entities to do business from within the European Union, they are still struggling to transfer EU clients to the new divisions, the BoE said.

Only 10% to 20% of most major firms’ European Union clients are ready to enter into trades, according to the central bank. — Bloomberg