The European Banking Authority (EBA) has raised concerns about the adequacy of US dollar funding among European banks, revealing that 60 out of 267 institutions with significant US exposures lack sufficient dollar reserves to cover their obligations.  

This shortfall, highlighted in the EBA's recent report, underscores potential vulnerabilities in the European banking sector, especially as geopolitical tensions escalate.​ 

The report indicates that US dollars constitute approximately 12% of total funding for banks in the European Union and European Economic Area.  

Despite an overall improvement in dollar funding positions since the previous assessment, the EBA emphasizes that certain banks still face notable shortfalls.  

The regulator advises these institutions to address funding gaps by aligning assets and liabilities or implementing appropriate hedging strategies.​ 

Compounding these concerns, the EBA observes that US banks have expanded their footprint in the EU financial services market, now holding a significant presence in key sectors such as derivatives trading, where they command nearly 28% of the market share.  

This growing dominance raises questions about the EU's financial autonomy and its reliance on non-EU entities for critical financial services.​ 

The EBA's findings arrive at a time of heightened trade tensions between the EU and the United States. The recent imposition of substantial tariffs by Washington on EU imports has intensified fears of a transatlantic trade war.  

In this context, some EU officials are questioning the reliability of US dollar provisions through the Federal Reserve's swap line with the European Central Bank—a mechanism previously pivotal during financial crises.​ 

Olli Castrén, head of economics and impact assessment at the EBA, remarked that the data could be instrumental for the European Commission's efforts toward enhancing the EU's economic independence and strategic autonomy.  

While acknowledging the significance of free trade, Castrén downplayed immediate concerns regarding the substantial role of US banks in the EU market.​ 

The EBA's report serves as a critical reminder for European banks to fortify their funding strategies and for policymakers to reassess the region's financial dependencies, especially in light of evolving international relations and market dynamics.