Dollar Dependency Dilemma: Global Banks Brace for Potential Shocks

The Bank of England is seeking to assess the resilience of some lenders against potential U.S. dollar shocks, according to insiders. This move signals growing concerns over the stability of the dollar as the Trump administration's policies continue to raise alarm bells across global financial markets.

The shift in U.S. policy, particularly in areas concerning free trade and defense, has prompted European regulators to rethink their banks' dollar funding strategies. The BoE's Prudential Regulation Authority has specifically requested some banks to run internal stress tests to evaluate their dollar dependencies.

Should access to dollar funding be disrupted, analysts warn it could impede banks' liquidity, potentially undermining depositor confidence. While this scenario remains unlikely, it underscores a critical vulnerability in international banking systems dependent on the U.S. dollar.

(With inputs from agencies.)