Bank of England announces contingency plan where it will provide billions to the financial system to prevent chaos from Brexit
Mark Carney, governor at the BoE is expected to meet MPs on 8 March to discuss its Brexit positionGetty

The Bank of England (BoE) has devised contingency plans in the event of Britain voting to leave the European Union. According to the first of such plans, which was announced on 7 March, BoE said it will provide billions of pounds to the financial markets to prevent them from collapsing and ensuring lenders do not fall into a crisis.

BoE governor Mark Carney is expected to meet MPs on 8 March to discuss the EU Referendum. The announcement of such a plan indicates the scale of disruption expected if Britain votes in favour of Brexit on 23 June. It will add to the country's existing worry surrounding the pound's fall to seven-year lows.

According to the plan, the central bank will offer three Indexed Long-term Repo (ILTR) operations, a cheap money facility, to banks, building societies and brokers, in the event of a Brexit vote. The move will ensure these institutions will have enough cash to keep markets functioning smoothly if other participants refuse to do business with them.

The ILTRs will be offered just before and after the poll, on 14, 21 and 28 June. This cheap money facility is understood to ensure that lenders struggling to finance themselves will have access to money. Lenders who want to increase their cash deposit at their BoE account will be allowed to do so by providing the central bank with assets such as books of mortgages. While the collateral should be of good quality, the lenders are expected to return the money to the BoE within six months.

BoE revealed that a similar arrangement had been made at the time of the 2014 referendum on Scottish independence. This was to protect banks as it was then feared that investors would withdraw their money and consumers would prefer English currency to Scottish banknotes.

While this facility was then kept a secret, this time around, the BoE has revealed the same to ensure trading continues to run smoothly. While a BoE source said this was just a precautionary arrangement, the central bank said, "[it would] continue to monitor market conditions carefully and keep its operations under review".

Economists, however, said that the uncertainty Brexit would create could cause the markets to virtually close its doors to British lenders and brokers. Alan Clarke, UK economist at Scotiabank, said, "The Bank is letting us know that if firms are not prepared to take the other side of the trade, it will make sure there is enough liquidity. It's a fallback plan so the financial system doesn't seize up unnecessarily. If we vote out, there will be a massive 'risk-off' and people will just try to get trades done."