(Adds ECB action)
By Huw Jones and William Schomberg
LONDON, March 5 (Reuters) - The Bank of England said it will
offer more euros to banks in Britain to avoid any cash crunch
after Brexit and warned that other European Union countries are
not fully ready for the possible no-deal hit to the financial
The BoE said most financial stability risks in Britain from
a no-deal Brexit had been mitigated, and UK banks had enough
liquidity to go for months without needing to tap markets.
But as a precaution it will launch a new weekly auction of
euros from next week to ensure that banks based in Britain can
borrow in Europe's single currency, following on from a similar
announcement last week about weekly sterling operations.
The European Central Bank confirmed that the Eurosystem of
central banks would stand ready to lend pound sterling to euro
area banks, if needed.
EU banks hold 15 percent of UK bank debt and 10 percent of
UK government bonds.
With Brexit due to happen on March 29, British Prime
Minister Theresa May is holding out for further concessions from
Brussels, keeping the possibility of a disruptive, no-deal
Brexit on the table.
But she has also opened up the possibility of a delay to
Britain's exit from the EU.
The BoE and ECB are activating currency swap lines set up
following the financial crisis a decade ago.
RISK FOR EU BORROWERS
The BoE said that while Britain's banks and financial system
were ready for the "significant" volatility that would be
unleashed by a no-deal Brexit, households and companies in the
rest of Europe might face disruption.
Other EU countries have not been as active as Britain to
ensure that its borrowers could access financial institutions
across the English Channel.
Potential problems for borrowers in the EU included higher
interest rates on loans, and customers in the bloc were not
ready to do business with newly created units of banks and
exchanges headquartered in Britain which have been set up in
cities such as Frankfurt and Amsterdam in response to Brexit.
Only 10-20 percent of major clients in the EU have completed
the paperwork needed to switch locations.
There was a risk that problems in Europe could have a
knock-on effect in Britain, the BoE's Financial Policy Committee
said in a statement published on Tuesday.
"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," it said.
The British central bank also said EU banks and insurers
might have less appetite for UK government bonds and bank debt
if Britain leaves the bloc without a deal, due to tougher
capital rules by EU regulators.
BoE Governor Mark Carney has previously warned that Britain
was reliant on the "kindness of strangers" because of its large
current account deficit which could become harder to fund if the
country suddenly lost the confidence of foreign investors.
(Reporting by Huw Jones, editing by Ed Osmond)