Worried that there might be a shortage of euros available to UK exporters and banks if Britain leaves the EU without a deal, the BoE and the ECB have agreed to create an emergency currency swap line to ensure uninterrupted access to cash.
As the Independent explains, this means the Bank of England will offer to lend euros to UK banks on a weekly basis while the ECB will receive pound sterling from the BoE in exchange for euros.
It means that even if the UK crashes out of the EU without a deal, the country will still remain reliant on Frankfurt to help safeguard the financial system.
"Activation marks a prudent and precautionary step by the Bank of England...supporting the functioning of markets that serve households and businesses," the ECB said on Tuesday.
There had been some speculation that the ECB wouldn't agree to the swap line, but the central bank affirmed on Tuesday that it would move ahead with plans to create one.
Meanwhile, BoE Gov. Mark Carney on Tuesday reiterated his warning that a no-deal Brexit would be an "economic shock" and that "some disruption of cross-border services" would be possible.
While Britain’s financial system is ready for the volatility that could be unleashed by a no-deal Brexit, the BoE warned that companies in the rest of Europe might face some disruptions, according to Reuters.
While Britain had ensured that its borrowers could access financial institutions on the other side of the English Channel if London and Brussels fail to strike a deal in time for Brexit, other EU countries had not been as active, it said.
Here's more from the Independent.
In its latest health check of the financial system, the BoE also warned that "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.
"Although these would primarily affect EU households and businesses, they could also be expected to spill back to the UK in ways that cannot be fully anticipated and mitigated," it added in a statement.
However, the BoE said banks, insurers and other key parts of the UK financial system had to a large extent protected themselves from the risks of Brexit.
The remarks came in minutes published on Tuesday of the Financial Policy Committee (FPC) meeting held on 26 February.
Britain has had similar swap lines with four other central banks since 2013: The US, Canada, Japan and Switzerland. Swap lines are intended to ensure that the liquidity taps remain open during a crisis.