In March 2023, the collapse of Credit Suisse could only be prevented by a large-scale government intervention. A critical dimension of the crisis that received less notice was the role of foreign currency funding. A series of management failures and financial losses eroded confidence in the bank and led to several waves of deposit withdrawals. A substantial amount of these withdrawals was denominated in foreign currencies. The Swiss National Bank (SNB) ultimately provided CHF 168 billion in emergency liquidity support, including substantial US dollar liquidity. To secure US dollar liquidity, the SNB relied on the Federal Reserve’s FIMA facility, which allows foreign central banks to temporarily raise US dollars by posting their own US Treasury holdings as collateral. 

This episode served as a reminder that foreign currency funding remains a key source of risk in the global financial system. Although the topic has been widely studied, especially in the wake of the global financial crisis, several important questions have remained unanswered including: Does the use of financial derivatives increase or decrease foreign currency funding risk?  How do global financial institutions source their foreign currency funding? Can liquidity move across borders within an institution to where it is needed during a stress event? What central bank backstops are available?

A new report from the Committee on the Global Financial System (CGFS 2026) tackles these questions and provides the most comprehensive assessment to date of foreign currency funding risks across major financial systems. The report focuses on five major currencies: the US dollar, euro, Japanese yen, British pound, and Swiss franc. Collaborating across 21 institutions, the report combines traditional bank balance sheet data with confidential information on banks’ derivatives positions, to offer new insight into how banks manage – and sometimes amplify – their foreign currency exposures. Additionally, a survey conducted by the working group identified two critical channels for addressing foreign currency funding shortages. First, internal capital markets within banking groups, which act as the first line of defence, and second, central bank liquidity facilities as the last resort. These findings have important implications for financial stability and the ongoing debate about the international monetary system’s resilience.

The scale and geography of foreign currency funding

The CGFS report confirms what many have long suspected: the US dollar dominates foreign currency funding across most jurisdictions and financial systems except for small open European economies where the euro is the main foreign currency (Figure 1). The report goes further by revealing how banks manage this exposure. Banks typically seek to minimise currency mismatches through derivatives-based hedges. These hedges reduce foreign currency funding risk, provided they do not introduce rollover risk. 

Figure 1 The five major foreign currencies in total liabilities, by bank nationality

Note: Share of total liabilities (excluding interoffice positions). The numerator excludes currencies when they are domestic for each nationality (e.g. euro for Austria (AT) banks). EA = euro area banks; OFC = banks with parents in Bahrain (BH), Bermuda (BM), BS (Bahamas (BS), Isle of Man (IM), Jersey (JE), Cayman Islands (KY) and Panama (PA); Asian EMEs = Indonesia (ID), South Korea (KR), Malaysai (MY), Philippines (PH), Chnese Taipei (TW); Other EMEs = Saudia Arabia (SA), Chile (CL), Mexico (MX), Türkiye (TR). 2024:Q2 data.
Sources: BIS locational banking statistics by nationality (LBSN); BIS consolidated banking statistics (CBS)

The geography of foreign currency funding is another key factor. Banking groups typically source most foreign currency funding from their home offices, rather than from the currency-issuing jurisdiction, and often redistribute it through internal capital markets (Figure 2). A European bank’s US dollar funding, for instance, might come primarily from its European headquarters rather than from its US operations, creating a complex web of internal flows that cross multiple borders and legal jurisdictions. 

Figure 2 Booking location of foreign currency liabilities, by bank nationality

Note: Percent of foreign currency liabilities. 2024:Q2 data. The foreign currencies are USD, EUR, JPY, GBP and CHF, excluding cases where these are domestic for the nationality. The bars exclude interoffice liabilities. “Home offices” are those located in the country of headquarters. Offices in “currency region” are those located in the jurisdiction issuing the underlying currency (eg offices in Switzerland for CHF liabilities). EA = euro area banks; OFC = banks with parents in Bahrain (BH), Bermuda (BM), BS (Bahamas (BS), Isle of Man (IM), Jersey (JE), Cayman Islands (KY) and Panama (PA); Asian EMEs = Indonesia (ID), South Korea (KR), Malaysai (MY), Philippines (PH), Chnese Taipei (TW); Other EMEs = Saudia Arabia (SA), Chile (CL), Mexico (MX), Türkiye (TR).
Sources: BIS locational banking statistics by nationality (LBSN); BIS consolidated banking statistics (CBS).  

While in this column we focus on banks, it is worth noting that non-bank financial institutions (NBFIs) also contribute to foreign currency funding risk. Estimates suggest sizable use of FX derivatives by the pension and insurance sectors, and NBFIs can be sources of potentially flighty foreign currency funding for banks during stress periods.

Key financial vulnerabilities

The report identifies several key vulnerabilities that can turn foreign currency funding from a routine banking activity into a source of systemic stress. First, banks’ typical maturity transformation activity generates a currency mismatch at short maturities (Figure 3). Banks borrow short-term in foreign currencies to fund longer-term assets, creating the classic banking vulnerability of maturity transformation – but linked to currency risk.

Figure 3 Foreign current on-balance sheet short-term net liability positions, selected bank nationalities and currencies

Note: Net positions are liabilities minus assets. Percent of total liabilities in the given currency, as of 2024:Q2. Consolidated data for the following nationalities: Australia, Canada, Switzerland, United Kingdom, South Korea, Mexico. JPY bars exclude Australia and Canada banks; GBP bars exclude Switzerland and United Kingdom banks; CHF bars exclude Australia, Canada and Switzerland banks. 

Second, the use of derivatives to fund or hedge these positions introduces additional rollover risk. FX swaps and similar instruments typically have short maturities and must be continuously renewed. During stress periods, these markets can become illiquid or prohibitively expensive. A bank that has relied on rolling over three-month FX swaps to fund its dollar assets may suddenly find this strategy untenable. In the days preceding Credit Suisse’s failure, the bank progressively lost access to FX swap markets, and consequently limited its ability to convert Swiss francs into other required currencies.

Third, internal capital markets within banking groups are the primary mechanism for distributing foreign currency liquidity, but this could become challenging during stress, even when banks have adequate foreign currency funding liquidity in aggregate. The CGFS survey of member central banks found that various impediments can restrict intragroup liquidity transfers precisely when they are most needed. Regulatory ring-fencing, local capital requirements, and concerns about subsidiary solvency can all prevent funding from flowing to where it’s needed. Credit Suisse’s difficulties illustrate this problem: internal funding channels that worked in normal times proved inadequate during the crisis, necessitating external official sector support.

Finally, beyond the balance sheet vulnerabilities already described, off-balance sheet commitments can materialise suddenly during stress, creating unexpected funding needs. Contingent credit lines, derivatives exposures, and other commitments that appear manageable in calm markets can become acute funding drains when markets turn.

Central bank facilities: Essential but limited

The CGFS survey provides valuable new information on how authorities respond to foreign currency funding stress. Approximately 80% of surveyed jurisdictions maintain liquidity facilities for the US dollar, while about 60% have facilities for other major currencies. These arrangements proved their worth during the Credit Suisse episode. The Federal Reserve’s Foreign and International Monetary Authorities (FIMA) facility played a particularly important role. By allowing the SNB to temporarily exchange its Treasury holdings for dollars without actually selling the securities, the facility provided dollar liquidity while avoiding potential market disruption from large-scale Treasury sales. This innovative facility, established during the COVID-19 pandemic, demonstrated its value in a bank-specific crisis.

Central bank swap lines – standing arrangements between major central banks to provide foreign currency liquidity – represent another critical layer of the safety net.  Given the interconnected nature of global trade and finance, central bank facilities can help support intermediation by foreign banks to the benefit of domestic firms and households.

Importantly, these facilities are backstops, not solutions to structural funding mismatches. They provide temporary liquidity but cannot substitute for sustainable funding models. The Credit Suisse crisis demonstrated both their essential role and their limitations: official sector support stabilised markets, but ultimately the bank was acquired by UBS and the Swiss National Bank provided extensive liquidity assistance.

Authorities need to continue international coordination and cross-border crisis preparedness efforts

The Credit Suisse crisis demonstrated that foreign currency funding vulnerabilities remain material even in advanced, well-regulated financial systems. The CGFS report’s findings underscore the value of ongoing efforts by authorities to reduce these risks: enhancing monitoring tools, integrating foreign currency funding into stress testing frameworks, imposing currency-specific liquidity requirements, and strengthening the resilience of intragroup transfers during stress. Such measures aim to ensure that banks manage foreign currency funding risks responsibly, while international policy coordination and operational preparedness enhance their effectiveness.  Critically, central bank support depends on banks being well-prepared to access available facilities, subject to safeguards against moral hazard.

Important data limitations remain. The need to conduct the report’s analysis mainly at the country level – despite foreign currency funding risk being an entity-level concept – creates an incomplete global picture. Gaps in maturity profiles, asset liquidity, and derivatives usage further complicate risk assessment. Addressing these challenges, particularly by leveraging existing frameworks for international cooperation to overcome confidentiality constraints, would be instrumental in mapping global exposures. As global finance remains deeply interconnected, understanding and managing foreign currency funding risks is crucial for financial stability. 

References

Bahaj, S and R Reis (2020), “Central bank swap lines during the Covid-19 pandemic”, Covid Economics 2(1): 1-12.

CGFS – Committee on the Global Financial System (2026), Foreign currency funding risk and cross-border liquidity, Report prepared by a CGFS Working Group co-chaired by Stephanie Curcuru (Federal Reserve Board) and Antoine Martin (Swiss National Bank).