Central banks of eurozone, Britain agree to activate currency swap mechanism
Central banks of eurozone and Britain have agreed to activate currency swap mechanism that would ensure British banks continue to have access they need to euros, even during any market turmoil related to Brexit.
Move seems to be an attempt to shore up stability of British banks in case of a ‘no-deal’ Brexit, a scenario in which Britain could fall out of European Union without a deal on trade relations. That could stress financial system and providing liquidity would be one way for central banks to keep financial sector going.
The European Central Bank said it was working closely with 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’ was likely if Britain crashes out of European Union on March 29 without a deal.
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, committee said markets have “proved able to function effectively through volatile periods” and that UK’s core banking system is strong enough to withstand economic shock of a disorderly Brexit
A senior British government minister insists that Brexit talks with European Union are making progress, as negotiators meet in Brussels seeking a way to break logjam.
Foreign Secretary Jeremy Hunt says, “Signals we are getting are relatively positive.”
EU chief negotiator Michel Barnier is meeting UK Brexit Secretary Stephen Barclay and Attorney General Geoffrey Cox on Tuesday, as Britain seeks changes to a Brexit deal that has been rejected by UK lawmakers.