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Investing.com -- Euro zone banks could face pressure if U.S. dollar funding becomes scarce, potentially forcing them to reduce lending to the economy, European Central Bank Chief Economist Philip Lane warned on Tuesday.
Lane pointed to the vulnerability created by banks’ substantial U.S. dollar-denominated off-balance sheet exposures combined with volatile funding sources.
"The combined presence of substantial USD-denominated off-balance sheet exposures and volatile funding means that sudden changes in these net exposures cannot be ruled out," Lane said.
He added that if such a risk scenario became more likely, it would "generate pressures on both sides of banks’ balance sheets and potentially downward pressure on on-balance sheet exposures like loans to the real economy."
The warning highlights concerns about euro zone financial stability in scenarios where access to dollar funding becomes constrained.
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