European central bankers are quietly asking a question they never thought they’d need to consider: Can they still count on the US Federal Reserve for emergency dollar funding if markets crash?
According to Reuters, several European banking officials have been holding behind-the-scenes talks about this possibility, reflecting new uncertainties in the traditionally rock-solid financial relationship between the US and Europe.
“There’s no good substitute to the Fed,” one source told Reuters, highlighting just how critical US dollar access is for European financial stability.
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The conversations stem from concerns about the Trump administration’s “America First” approach and its potential impacts on international financial cooperation. While officials think it’s still unlikely the Fed would actually cut off dollar supply during a crisis, the fact they’re even discussing it shows how much trust has eroded.
About 17% of European banks’ funding comes in dollars, and during past financial storms, the Fed’s emergency swap lines have been a crucial lifeline.
One official described the discussions as examining what happens when “the US government might pressure the Fed to suspend the dollar backstops” — a scenario that would have been unthinkable in previous administrations.
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