BoE warns of Europe-wide finance risks on Brexit

LONDON • Europe’s financial system faces “potential risks” to its stability arising from a no-deal Brexit, the Bank of England (BoE) warned yester, as it extended its weekly lending facilities to include euros.

With just 24 days to go until Britain is set to leave the European Union (EU), the BoE said businesses and households across Britain and the EU were vulnerable.

The BoE said it had activated a swap line with the European Central Bank (ECB), which will provide euros in exchange for British pounds.

Brussels and London are furiously trying to steer away from a dreaded “no-deal” divorce that could wreak havoc on global markets.

The BoE warned yesterday that “some disruption to cross-border services is possible and, in the absence of other actions by EU authorities, some potential risks to financial stability remain.

“Although these would primarily affect EU households and businesses, they could also be expected to spill back to the UK in ways that cannot be fully anticipated and mitigated,” it added in a statement.

The British central bank made the remarks in minutes from its Financial Policy Committee (FPC) meeting that was held on Feb 26.

The BoE also said it was further stepping up its lending facilities for commercial banks over the next few months.

A week after the bank said it would increase the frequency of existing market-wide sterling cash loans from monthly to weekly, the BoE yesterday added that this would be extended to euros.

“The FPC welcomes the recent BoE decision to increase the frequency of the bank’s sterling liquidity operations and to initiate a new weekly Liquidity Facility in Euros (LiFE), alongside the existing weekly dollar lending facility,” it said.

The ECB said in a separate statement that the BoE’s euro facility was a “prudent and precautionary step” aimed at supporting the smooth functioning of markets that serve households and businesses.

Eurozone central banks would also be ready to lend British pounds to commercial lenders in the single currency zone, the ECB said.

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.

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

The EU’s chief Brexit negotiator Michel Barnier met Britain’s negotiating team yesterday as both sides seek a breakthrough. — AFP