The Bank of England (BoE) has begun an assessment of the resilience of several banks amid uncertainty surrounding Trump's policies and potential dollar shocks.
Trump's Policy Shift and Its Impact on the Dollar
Trump's departure from longstanding U.S. positions on free trade and defense has undermined confidence in the dollar as a global reserve currency, shaking global markets and raising concerns among lawmakers.
Risk Assessment and Stress Tests in Banks
BoE has urged banks to conduct internal stress tests regarding a potential shutdown of the dollar swap market and to reassess their dollar funding approaches. Economist Richard Portes expressed concerns over the Fed’s reluctance to provide swaps in a global dollar funding crisis.
Analysis of Responses and Future Outlook
Previous assessments revealed that eurozone banks rely on about one-fifth of their operations on dollars. Meanwhile, the Fed offers several loan programs aimed at ensuring dollar stability and mitigating financial difficulties.
The situation surrounding the dollar remains uncertain, necessitating banks to adapt to changing conditions to minimize risks.
