The move seems to be an attempt to shore up the stability of British banks in the case of a “no-deal” Brexit, a scenario in which Britain could fall out of the European Union without a deal on trade relations. That could stress the financial system, and providing liquidity would be one way for the central banks to keep the financial sector going.
The European Central Bank said on Tuesday it is working closely with the Bank of England to monitor conditions in financial markets and stands ready to act as needed.
The Bank of England has warned that “significant market volatility” is likely if Britain crashes out of the European Union on March 29 without a deal.
Minutes of the recent meeting of the bank’s Financial Policy Committee showed officials warning that in a “disorderly Brexit,” a range of financial assets, including the pound and stocks, “would be expected to adjust sharply, tightening financial conditions for U.K. households and businesses.”
They said that EU banks and insurance companies could also immediately face tougher requirements on their holdings of UK debts, which would reduce demand for UK assets.
However, the committee said markets have “proved able to function effectively through volatile periods” and that the UK’s core banking system is strong enough to withstand the economic shock of a disorderly Brexit
A senior British government minister insists that Brexit talks with the European Union are making progress, as negotiators meet in Brussels seeking a way to break the logjam.
Foreign Secretary Jeremy Hunt says “the signals we are getting are relatively positive.”
EU chief negotiator Michel Barnier is meeting U.K. Brexit Secretary Stephen Barclay and Attorney General Geoffrey Cox on Tuesday, as Britain seeks changes to a Brexit deal that has been rejected by U.K. lawmakers.
Their objections centre on a provision to guarantee there are no barriers along the currently invisible Irish border. Britain wants reassurances the mechanism will be temporary.
EU leaders insist that the legally binding withdrawal agreement can’t be reopened. But Hunt told the BBC that Britain is “prepared to be flexible” about how changes are achieved.