LONDON – Growing uncertainty around U.S. foreign policy under former President Donald Trump has prompted the Bank of England (BoE) to ask major banks to reassess their reliance on the U.S. dollar, especially in times of financial stress.
The U.S. dollar is the backbone of international trade and finance. But Trump’s disruption of traditional U.S. policy on free trade and international cooperation has sparked concerns among global policymakers. They fear that in future crises, the Federal Reserve may hesitate to provide emergency dollar liquidity to foreign banks, support that was once considered a given.
In response, UK regulators, including the Prudential Regulation Authority (PRA)—the BoE’s supervisory arm—have privately instructed several large banks to review their dollar funding strategies. These reviews include stress tests on scenarios where access to U.S. dollar liquidity could completely dry up.
One global bank based in the UK was recently told to model the impact of a full freeze in the dollar swap market. “In a global dollar funding crisis, the Fed might hesitate to offer swaps for fear of a strong Trump reaction,” warned Richard Portes, a professor at London Business School and former advisor to the European Systemic Risk Board.
The BoE declined to comment, and so did major UK banks with international operations, including Barclays, HSBC, and Standard Chartered.
A White House spokesperson, however, defended Trump’s economic record, noting, “Stock and bond rallies and trillions in historic investment commitments since Election Day reaffirm investor confidence in the U.S. dollar and economy under President Trump.”
Still, market analysts remain cautious. The dollar dominates over 90% of global currency derivatives, with daily FX swap volumes nearing $4 trillion, according to the Bank for International Settlements. This makes global banks highly exposed to dollar funding risks, especially in times of crisis.
Following the 2008 financial crash, UK and European banks reduced their exposure to the dollar. But Robert McCauley, a former BIS advisor, warned that “their vulnerability to a breakdown in dollar funding markets remains.”
European regulators, including the European Central Bank (ECB) and Swiss National Bank, have issued similar guidance to their respective banks, highlighting growing concern across the continent about dollar liquidity risks.
While the Fed maintains swap lines with the ECB, BoE, and others, doubts persist over whether future U.S. leadership would support foreign institutions in a dollar crisis, particularly mid-sized non-U.S. banks. One senior analyst described it as a “new paradigm” where international cooperation can no longer be assumed.
The BoE has previously tested banks on dollar access during crisis simulations, including a 2019 liquidity review. However, it remains unclear if such scenarios will be part of its next industry-wide stress test, expected in late 2025.
As financial institutions brace for possible dollar shocks, regulators are making it clear: dollar access can no longer be taken for granted.
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