Overview

• The Bank of England’s Prudential Regulation Authority has asked select lenders to run internal stress tests simulating a complete halt in U.S. dollar swap markets.
• Preliminary results revealed that no major bank could sustain such a shock for more than a few days due to heavy dependence on dollar funding.
• The move follows similar directives from the European Central Bank and a warning from the Swiss National Bank about potential foreign-currency liquidity shortfalls.
• Regulators are reexamining their trust in Federal Reserve swap lines because President Trump’s policy shifts and criticism of the Fed have raised doubts about dollar availability in crises.
• A Bank for International Settlements study shows 90% of global currency derivatives involve the U.S. dollar, underscoring widespread exposure to dollar liquidity risks.