Europe’s dollar dilemma: pooling reserves to cut Fed reliance after Trump shocks

Updated: November 14, 2025 01:10

Image Source: Reuters

European financial stability officials are debating a pooled-dollar backstop to reduce dependence on the U.S. Federal Reserve’s swap lines, amid concerns that facilities could be politicized under the Trump administration. While the Fed hasn’t signaled any change, supervisors have asked banks to stress-test dollar needs, reflecting a prudential shift in planning.

Europe’s evolving dollar strategy

European policymakers are exploring whether non-U.S. central banks could collectively pool dollar reserves as an alternative safety net to Fed backstops, a cornerstone of global market stability during crises. The discussions are driven by worries about political interference and the reliability of dollar liquidity under a Trump-led U.S. administration.

Interviews with multiple European central banking and supervisory officials indicate informal talks about contingency options. The Fed’s swap lines and facilities are viewed as critical lifelines, yet the fear is they might be “weaponized,” even though the Fed itself has not indicated any policy shift away from its established role.

ECB supervisors have reportedly asked select eurozone lenders to assess stressed dollar funding needs and model scenarios where access to Fed liquidity might be constrained. Nearly one-fifth of eurozone banks’ funding needs are linked to dollars, heightening the importance of robust contingency planning and diversified liquidity sources.

Some media summaries echo the Reuters reporting, underscoring shaken trust in U.S. policy continuity and renewed European focus on autonomy in crisis liquidity planning. Analysts emphasize that while the probability of the Fed withholding support remains low, prudence argues for building regional buffers and market-based alternatives.

Key highlights from the developing debate

Motivation and risk:

Concern that dollar backstops could become subject to political pressure, prompting a search for Europe-controlled solutions.

Contingency planning:

Informal discussions on a pooled dollar facility among non-U.S. central banks; no formal blueprint disclosed.

Bank supervision response:

ECB supervisors urging banks to quantify stressed dollar needs and test reliance assumptions in crises.

Status of Fed facilities:

No signals from the Fed of curtailing swap lines; the debate is precautionary rather than reactive to policy changes.

Scale of exposure:

Dollar funding remains significant for eurozone banks, reinforcing the case for diversified liquidity access.

Market implications:

A European dollar pool could reduce tail risks, but governance, access rules, and size would determine credibility.

What to watch next

Design choices: Governance, eligibility, collateral, pricing, and coordination with existing swap lines.

Political coordination: EU-wide support and central bank alignment on operational mechanics.

Signal from the Fed: Any reaffirmation of swap-line commitments or framework clarifications could temper European urgency.

Sources: Reuters via Yahoo Finance, The Daily Star, U.S. News

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