Exclusive-Bank of England scrutinizes lenders for dollar risk amid Trump worries, sources say
By Stefania Spezzati, Jesús Aguado and Lawrence White
LONDON (Reuters) -The Bank of England has asked some lenders to test their resilience to potential U.S. dollar shocks, three sources said, the latest sign of how the Trump administration’s policies are eroding trust in the U.S. as a bedrock of financial stability.
As the leading currency for global trade and capital flows, the U.S. dollar is the lifeblood of global finance.
However, President Donald Trump’s break from long-standing U.S. policy in areas such as free trade and defence has forced policymakers to consider whether the emergency provision of dollars in times of financial stress can still be relied on.
Following similar demands from European supervisors, the Bank of England, which oversees banks in the City of London financial hub, has requested that some lenders assess their dollar funding plans and the degree to which they depend on the U.S. currency, including for short term needs, one of the people told Reuters.
In one instance, one global bank based in Britain was asked in recent weeks to run stress tests internally, including scenarios where the U.S.-dollar swap market could dry up entirely, another of the sources said.
The BoE’s supervisory arm, the Prudential Regulation Authority (PRA), made the requests individually to some of the banks, the person added.
No bank could withstand such a shock for more than a few days, according to one of the sources, given the dominance of the dollar in the global financial system and lenders’ dependence on it.
Should dollar borrowing become harder to obtain and more expensive for banks, it could hamper their ability to carry on meeting demands for cash. Ultimately, a bank that struggles to gain access to dollars could fail to meet depositor requests, undermining confidence and triggering further outflows.
While this scenario is seen as extreme and unlikely, regulators and banks are no longer taking dollar access for granted.
A spokesperson for the Bank of England declined to comment for this article. Representatives for the biggest UK banks with international businesses including Barclays, HSBC and Standard Chartered also declined to comment.
Global banks have significant dollar exposure in their balance sheets, making them vulnerable to potential funding shocks.
While the U.S. Federal Reserve has said that it wants to continue to make dollars available in the financial system, Trump’s policy shifts have prompted European allies to reexamine their dependence on Washington.
Meanwhile, Trump’s repeated criticism of Fed chair Jerome Powell and reports the central bank chief may get fired are raising concerns of a loss of independence at the Fed and the repercussions on the dollar.
