ECB and Bank of England swap line

Frankfurt: The European Central Bank and Bank of England set up a temporary swap line to help ease liquidity strains at Ireland’s lenders in case the sovereign-debt crisis intensifies.

The Bank of England could provide up to £10 billion (€11.8bn) to the ECB in exchange for euros if needed, the Frankfurt-based central bank said.

The facility will allow funds to be made available to the central bank in Ireland, whose four largest lenders have British units.

This is “rather a sign that the Irish banks are short with sterling than a pure technical measure,” said Holger Sandte, chief European economist at WestLB Equity Markets in Dusseldorf. “You wouldn’t open up such big bowl if you don’t need it.”

This is a “precautionary measure for the purpose of meeting any temporary liquidity needs of the banking system” in Ireland in pounds, the ECB said.

The agreement expires at end of September 2011.