The Bank of England and the European Central Bank (ECB) have agreed an emergency currency swap line to ensure banks have access to cash in the event of a no-deal Brexit
The agreement 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.
Since 2013, Britain has had similar swap lines with four other central banks: the US, Canada, Japan and Switzerland.
The UK needs free access to supplies of foreign currencies to facilitate trade and much of the financial services industry.
During a crisis, banks can find it hard to access the volume of foreign currency they need. It is at this point that central banks will be available to provide cash through so-called swap lines.
There had been some speculation that the ECB would not support a euro swap line if no Brexit deal is agreed with the UK.
But the ECB and BoE confirmed on Tuesday that the facility will be available.
The ECB said it will continue to work closely with the Bank of England to monitor market conditions carefully.
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.
Laith Khalaf, senior analyst, Hargreaves Lansdown said the BoE had given a "clean bill of health" to banks and insuruers ahead of Brexit.
"The Bank does expect volatility in market prices if a no-deal Brexit materialises, which will come as a surprise to precisely no-one.
"However what is interesting is that the central bank’s numbers show the heightened risk associated with Brexit has at least been partly factored into UK share prices.
"No-one knows whether the UK will leave the EU with or without a deal, and given the range of political permutations it’s not even possible to robustly assign a probability to either outcome, let alone what the financial implications might be."
