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Document Type

Case Study

Case Series

Central Bank Swap Lines

Abstract

In 2019, the Bank of England (BoE) determined that a disorderly exit of the United Kingdom from the European Union (EU)—commonly referred to as Brexit—could disrupt the flow of financial services that EU firms provided to UK households and businesses. To ensure that UK banks, building societies, and broker-dealers would have access to euro liquidity in that scenario, on March 5, 2019, the European Central Bank (ECB) and Bank of England took the precautionary step of activating a standing bilateral swap line of unlimited size that had been agreed to in 2013. The BoE immediately announced that it was ready to lend euros to UK financial institutions through its new euro repurchase agreement weekly Liquidity Facility in Euros (LiFE), mirroring an existing weekly US dollar facility that relied on a similar swap arrangement between the BoE and the Federal Reserve. The BoE closed its LiFE facility in October 2021 after no real use except for minimal test cases. Although the ECB said that it also stood ready, if needed, to lend pounds sterling to eurozone banks under the swap arrangement that had been agreed to in 2013, its 2019 annual report noted that it had not activated pound sterling operations.

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