ECB to pledge to backstop markets in tandem with BOE should UK votes to leave EU
The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union, officials with knowledge of the matter told Reuters.
The preparations illustrate the heightened state of alert ahead of the June 23 referendum, which will help determine Britain’s future in trade and world affairs and also shape the EU. The pound and euro have lost value on fears a Brexit could tip the 28-member bloc into recession.
Such an announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU, according to the sources. The aim is to underpin investor confidence across Europe and contain further market jitters.
“There will be a statement to do whatever it takes to maintain adequate market liquidity,” said one senior central bank official, who spoke on condition of anonymity.
The ECB’s pledge would involve opening so-called swap lines with the Bank of England, allowing euros and sterling to be exchanged and effectively making unlimited funding in both currencies available to European banks, the sources said.
The ECB and Bank of England declined to comment.
The Bank of England said last month that possible “heightened uncertainty” due to the vote may make it harder for banks to tap their usual sources of foreign currency and that it would keep its operations, including swap lines, under review.
The ECB used similar arrangements with the U.S. Federal Reserve to unlock extra dollars during the financial crisis and after the 9/11 attacks.
Providing extra funds to banks after a Brexit vote would ease pressure on them and reduce the potential for panic as financial markets digest the result on Friday, June 24, shortly before closing for the weekend.
The ECB is limited in what it can do, beyond releasing funds for banks. Extending its money-printing programme, which has already saturated markets with more than one trillion euros ($1.1 trillion) and is gradually running out of bonds and securities to buy, would likely be contested by some countries such as Germany.