European financial stability officials are considering creating an alternative to Federal Reserve funding backstops by pooling dollars from non-U.S. central banks. Concerns over Trump administration policies led to worries about the Fed’s facilities being weaponized, but Fed assurances have eased some fears. Dollar pooling faces limitations but is being discussed at the staff level involving euro zone central banks.

Pooling dollar reserves may pose practical difficulties, as non-U.S. central banks lack the depth of the Fed’s reserves. While some central banks in Europe are pushing for pooling, initial analysis suggests it may not be viable. European officials are exploring other measures to improve resiliency, including increasing scrutiny of lenders and stress testing them.

Dollar demand spikes during market stress, and the Fed’s facilities play a crucial role in alleviating shortages and serving wider U.S. interests. Usage of these facilities peaked during the COVID-19 pandemic in 2020. While the loss of swaps is not a primary concern for the ECB, European officials are actively debating alternative measures to ensure financial stability in case of future uncertainties.

Read more at Yahoo Finance: Exclusive-European officials consider pooling dollars to lessen Fed reliance after Trump shocks