The Bank of England has begun pressing major lenders to detail how they would cope if U.S. dollar funding suddenly dried up, a scenario increasingly plausible amid concerns over a potential second Trump presidency. In quiet but deliberate steps, UK regulators are signalling that long-held assumptions about emergency dollar access through Federal Reserve swap lines may no longer hold, prompting a reevaluation of liquidity risk strategies across the banking sector.
This move reflects deepening regulatory unease about how geopolitical shifts could impact central bank cooperation. With the U.S. dollar involved in roughly 90% of global currency transactions and over $100 trillion in FX derivatives outstanding, any disruption in dollar availability would ripple through financial systems swiftly. Banks have been asked to model adverse conditions, especially in situations where Fed support is politically constrained or delayed, and to provide robust contingency frameworks in response.
The BoE’s Prudential Regulation Authority is intensifying scrutiny over short-term funding instruments, FX swap lines, and derivative exposures denominated in dollars. This regulatory stance underscores a broader trend: a shift from assuming stability to stress-testing for its absence. Financial institutions are being encouraged to reconsider their dependence on centralised dollar liquidity and explore more diversified, resilient models, before political uncertainty turns into market panic.
Recent political rhetoric, including direct criticism of Federal Reserve leadership by former President Trump, has only amplified concerns. Central bank independence, once sacrosanct, is now under pressure, fuelling fears that dollar swap mechanisms could become politicised. This is not merely hypothetical; policymakers are preparing for a world where liquidity is no longer guaranteed by goodwill, but must be protected through foresight and planning.
UK banks with substantial international operations face immediate pressure to update risk disclosures and funding strategies. Stress scenarios that were once regulatory exercises are now viewed as necessary defences. The message from Threadneedle Street is clear: assume less, prepare more. In a global market where the dollar’s dominance intersects with political unpredictability, resilience will depend not on assumptions; but on anticipation.
