Bank of England examines lenders for the risk of dollars in the midst of Trump’s concerns, said the source

Bank of England has asked several lenders to test their resilience to potential US dollars, three sources said, the latest sign of how Trump’s administrative policy eroded trust in the US as a basis for financial stability.

As a leading currency for global trade and capital flow, the US dollar is the blood of global financial life.

However, President Donald Trump’s rest from US policies that have long existed in fields such as free trade and defense have forced policy makers to consider whether the provision of dollar emergencies when financial pressure is still reliable.

Following similar demands from European Supervisors, Bank of England, who oversees banks in the City of London Finance Center, have requested that several lenders assess their dollar funding plans and the extent to which they depend on US currencies, including for short -term needs, one of the people told Reuters.

In one example, a global bank based in the UK has been requested in recent weeks to run stress tests internally, including scenarios where the US dollar exchange market can dry completely, other words from the source.

Boe’s supervisory arm, Prudential Regulation Authority (PRA), submitted an individual request to several banks, added the person.

There is no bank that can withstand such surprises for more than a few days, according to one source, given the dominance of the dollar in the global financial system and the dependence of lenders to him.

If dollar loans become more difficult to obtain and more expensive for banks, it can hamper their ability to carry out cash demands. In the end, banks that struggle to get access to the dollar can fail to meet the demand for depositors, damage confidence and trigger further outflows.

While this scenario is seen as extreme and impossible, regulators and banks no longer accept dollar access.

A spokesman for the Bank of England refused to comment on this article. Representatives for the largest British banks with international businesses including Barclays Barc, HSBC HSBA and Standard Chartered Stan also refused to comment.

The global bank has a significant dollar exposure on their balance sheet, making them vulnerable to potential funding shocks.

While the US Federal Reserve said that they wanted to continue to provide dollars in the financial system, Trump’s policy shift had encouraged European allies to test their dependence on Washington.

Meanwhile, Trump’s repeated criticism of Fed Chair Jerome Powell and reported that the head of the central bank could be fired causing concerns about the loss of independence in The Fed and the impact on the dollar.

The multi-trillion dollar swap market is an important part of the international financial system used by companies including banks to exchange other currencies with dollars to manage liquidity needs throughout their global network.

According to a study by a bank for international settlements, at the end of 2024 the normal value of global currency derivatives was $ 130 trillion, 90% of them involved US dollars. One distinctive day saw nearly $ 4 trillion in the new FX exchange contract, according to the bus.

Global banks can take advantage of US dollar deposits to withstand temporary shortcomings, said one source. But the regulator is worried that the international bank will remain exposed to the risk of dollars, said one person.

One source told Reuters that bank leaders were very concerned about whether Fed would support a non-as-as-US bank if he wanted to experience a dollar shortage problem, where, in the past, the support was assumed to be guaranteed.

The Fed has a loan facility with the European central bank, the Bank of England and other major colleagues to reduce the lack of global reserve currencies and to maintain financial pressure from spilled into the United States.

But the Central Bank and European Supervisor officials for months have questioned whether they can still rely on the Fed, as Reuters reported earlier.

ECB Supervisors have since asked several lenders in the region to assess their needs for US dollars at stress, because they play scenarios where they cannot rely on tapping the federal reserve under Trump’s government.

Previously in June, the Swiss National Bank warned that “Some banks can also face the risk of lack of liquidity in foreign currencies” in their balance sheet.

Boe in the past asked the bank how they would ensure the supply of dollars during the stress period, such as in the 2019 system inspection in the bank’s liquidity during the crisis, but the new focus on the US currency shows how Trump’s actions have revived the concern.

Reuters cannot determine whether the dollar shock will be part of the stress test for the industry that Boe runs every year and the results are expected later in 2025.
Source: Reuters