U.S. Markets closed

Bank of England to offer euros to banks to avoid Brexit crunch

(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.


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)