ECB Warns Banks Against Dollar Risk

European Central Bank (ECB) Chief Economist Philip Lane emphasized that potential disruptions in dollar funding could pose a significant threat to banks in the Eurozone. In a statement made during the “2025 WE_ARE_IN Macroeconomics and Finance Conference” held in Frankfurt, he expressed that this situation carries substantial risks for the sustainability of banks.

Lane noted that particularly the sales of U.S. Treasury securities have deepened Eurozone banks' reliance on dollar-denominated liquid assets during turbulent times. This situation could restrict access to financing for banks in the Eurozone during periods of high volatility, potentially leading to liquidity shortages.

When banks are unable to adequately manage the risks associated with foreign currencies, the likelihood of being affected by market fluctuations increases. A decline in the value of the dollar in international markets could create a more challenging environment, especially for banks engaged in foreign trade. In this context, it is essential for Eurozone banks to develop a strong liquidity management strategy.

It is crucial for banks in the Eurozone to reassess their foreign currency portfolios in parallel with financial movements in the U.S. Lane noted that in the event of increased uncertainty, banks' ability to manage their reserves would become even more challenging. This could lead to a weakening of confidence in the dollar, independent of the euro, which would negatively impact market dynamics and threaten financial stability.

In addition to the decline in the dollar's value and changes in funding flows, sustainable financing policies that European banks must implement should also remain on the agenda. Managing dollar risks is critical not only for overcoming current financial challenges but also for enhancing banks' resilience against future crises.