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March 5, 2019, 5:06 a.m. EST

Bank of England activates euro swap line

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By Jason Douglas

LONDON--U.K. banks will be able to borrow in euros from the Bank of England from next week, the latest move to shore up the financial system in the event of an abrupt and messy break from the European Union.

The BOE warned, however, that investors should nevertheless brace for severe disruption in financial markets if the U.K. tumbles out of the EU March 29 without agreement over the terms of its withdrawal from the bloc.

The U.K. central bank said Tuesday it has activated a dormant financial crisis-era "swap line" with the European Central Bank that allows it to provide euros to any British bank that needs them to keep functioning in a funding crunch.

A similar arrangement with the U.S. Federal Reserve allows the BOE, the ECB and a handful of other major central banks to provide dollars to domestic lenders in a financial emergency.

The new facility marks the latest step by the BOE to ensure the U.K. financial system is robust enough to withstand even a severe downturn in the U.K. economy if Brexit goes awry.

Banks have been ordered to tuck away liquid assets and boost their capital levels to ensure they can keep lending to households and businesses.

Write to Jason Douglas at Jason.Douglas@wsj.com

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