The European Central Bank (ECB) and the Bank of England (BoE) have decided to activate currency swap arrangement for possible provision of liquidity, according to a statement released by the ECB on Tuesday.

As introduced by the ECB, under the standing swap line, which is part of a network of standing arrangements agreed in October 2013 by six major central banks including the ECB and the BoE, the BoE will obtain euro from the ECB in exchange for pound sterling and offer to lend euro to British banks on a weekly basis.

Meanwhile, the ECB and the national central banks of the 19 Eurozone member states would stand ready to lend pound sterling to euro area banks, if the need arises.

Therefore, banks in both euro area and Britain gain additional liquidity providing insurance in case of emergency triggered by a disorderly Brexit, which will contribute to financial stability.

With the March 29 deadline for Britain's departure from the European Union (EU) drawing on, rising tension for no-deal Brexit lingers in financial markets.

"The activation marks a prudent and precautionary step by the Bank of England to provide additional flexibility in its provision of liquidity insurance, supporting the functioning of markets that serve households and businesses," said the ECB. 

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