Key Points
- The Bank of England is asking some banks to conduct stress tests to assess their ability to withstand a U.S. dollar funding shock.
- The move is driven by fears that President Trump’s policies have made the U.S. a less reliable financial partner.
- Regulators are concerned that the U.S. Federal Reserve may not be able to provide emergency funds in a future crisis.
- Banks are being asked to model extreme scenarios, such as the complete failure of the dollar swap market.
The Bank of England has asked some major lenders to test their ability to withstand a major U.S. dollar shock, according to sources. This is the latest indication that the Trump administration’s unpredictable policies are eroding allies’ trust in the U.S. as the cornerstone of global financial stability.
The U.S. dollar is the lifeblood of the global financial system. In past crises, the U.S. Federal Reserve has provided emergency dollars to other central banks through “swap lines” to keep markets from seizing up. However, President Donald Trump’s “America First” approach to trade and defense has led European policymakers to question whether they can still rely on that backstop.
Now, the Bank of England is following its European counterparts in demanding answers. Sources indicate that the UK’s financial regulator has requested some banks to stress-test their funding plans, including scenarios where the U.S. dollar swap market ceases to function entirely. Experts warn that no bank could survive such a shock for more than a few days.
This reflects a growing concern among U.S. allies that, in a future crisis, the Fed might hesitate to assist due to fear of backlash from the White House.
While the White House insists that markets have confidence in the U.S. economy, the actions of regulators in London and across Europe tell a different story. They are no longer taking American financial support for granted and are preparing for a world where they might have to go it alone.
