By Valentina Za and Stefania Spezzati<\/p>\n
MILAN\/LONDON (Reuters) -European banks increased their reliance on U.S. dollars last year, Europe’s banking regulator said on Monday, amid growing concerns about the region’s vulnerability should dollar financing dry up.<\/p>\n
Banks globally have significant dollar exposure in their balance sheets, making them vulnerable to potential funding shocks.<\/p>\n
Dollar funding fears have grown since U.S. President Trump announced a wave of trade tariffs and began putting pressure on the Federal Reserve earlier this year.<\/p>\n
That has led some European central banking and supervisory officials to question whether they can still rely on the Fed to provide dollar funding in times of market stress.<\/p>\n
The European Central Bank’s Chief Economist Philip Lane said last month that euro zone banks may come under pressure if dollar funding were to dry up.<\/p>\n
The European Banking Authority said in a new report that European banks’ funding in dollars including deposits represented 13.1% of their total funding in December 2024, up from 12.4% a year earlier.<\/p>\n
Banks’ total exposure to assets denominated in dollars also rose to 23% from 19.3%, the EBA said.<\/p>\n
Reuters reported earlier this year that European and UK regulators have asked banks to monitor and stress test their resilience to dollar shocks.<\/p>\n
The EBA – which has a mandate to protect and support the EU financial system – also said that data indicated banks’ subsidiaries are increasing their reliance on U.S. dollar funding at a faster pace than their parent entities.<\/p>\n
The share of dollar funding increased the most during 2024 for securities financing transactions and unsecured wholesale funding, the EBA study shows.<\/p>\n
BANKS FACING A ‘MEANINGFUL CURRENCY MISMATCH’<\/p>\n
The banking authority also warned about “a rather meaningful currency mismatch” in European banks’ balance sheets, something regulators in Europe have asked lenders to monitor, Reuters has reported.<\/p>\n
The EBA added that, as of December 2024, one third of EU banks’ assets were denominated in foreign currencies, compared with just one fifth of their liabilities.<\/p>\n
Earlier in October, the International Monetary Fund said supervisors and banks should effectively monitor and manage liquidity risks in significant currencies.<\/p>\n
“At the individual institution level, attention needs to be paid to any significant currency gaps in the stable funding requirements unless these are adequately hedged,” the regulator added.<\/p>\n
Some EU banks have a net stable funding ratio (NSFR) – a measure of stable funding to cover a lender’s long-term assets – below the 100% minimum in some foreign currencies including the dollar, the EBA said.<\/p>\n
(Reporting by Valentina Za in Milan and Stefania Spezzati in London; Editing by Tommy Reggiori Wilkes)<\/p>\n","protected":false},"excerpt":{"rendered":"By Valentina Za and Stefania Spezzati MILAN\/LONDON (Reuters) -European banks increased their reliance on U.S. dollars last year,…\n","protected":false},"author":2,"featured_media":546482,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5174],"tags":[2000,299,5187,133309,14441,1699,5036],"class_list":{"0":"post-546481","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-eu","8":"tag-eu","9":"tag-europe","10":"tag-european","11":"tag-european-banks","12":"tag-european-central-bank","13":"tag-european-union","14":"tag-funding"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115486497506904770","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/546481","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=546481"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/546481\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/546482"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=546481"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=546481"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=546481"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}