Saudi Press

Saudi Arabia and the world
Sunday, Jun 01, 2025

There's an $80 trillion 'blind spot' in the financial system that could spell trouble for markets as debts held off-balance sheet grow at a rapid pace

There's an $80 trillion 'blind spot' in the financial system that could spell trouble for markets as debts held off-balance sheet grow at a rapid pace

A lack of transparency makes it more difficult for central bank officials to fully grasp just how big and impactful this lurking debt could be.
There is more than $80 trillion in hidden debts held by shadow banks and non-US banks that could ultimately spell trouble for markets.

That's because the debt is held off of balance sheets, and therefore a lack of transparency makes it all the more difficult for central bank officials to fully grasp just how big and impactful this lurking debt could be in the event of a stressful market event.

According to the Bank for International Settlements, the massive debt pile is tied to foreign currency swaps and represents repayment obligations between different financial institutions that have yet to be settled. For example, a foreign investment firm that wants to buy US assets, like a US-listed stock, would first have to convert their foreign currency to US dollars, often via a foreign-currency swap, and then buy the asset.

But for as long as the foreign investment firm holds onto the US-based asset, there's an ongoing currency obligation it owes until the trade is closed out. And that obligation is recorded off the balance sheets of financial institutions. This makes it difficult for central bank policymakers to fully grasp the potential demand for US dollars amid a volatile market event.

While the obligations are relatively safe, short-term, and backed by hard currencies, it could still be vulnerable during periods of high stress in the market.
"FX Swap markets are vulnerable to funding squeezes. This was evident during the Great Financial Crisis and again in March 2020 when the COVID-19 pandemic

wrought havoc. For all the differences between 2008 and 2020, swaps emerged in both episodes as flash points, with dollar borrowers forced to pay high rates if they could borrow at all," BIS explained in a Monday note.

The BIS calls it a "blind spot" for the financial system, and the hidden debt is growing quickly, having more than doubled since 2008. 

What's most concerning to the BIS is the lack of data and transparency around to these ballooning debts. That lack of visibility could make it all the more difficult for the Fed to alleviate market stresses in the event that supplies of the US dollar suddenly dried up.

"It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations. In times of crises, policies to restore the smooth flow of short-term dollars in the financial system — for instance, central bank swap lines — are set in a fog," BIS said. 

That's why the BIS is trying to get a handle on just how big the off-balance sheet debt is, though it admits its recently updated data is likely not a full representation of the currency obligations.

"Off-balance sheet dollar debt may remain out of sight and out of mind, but only until the next time dollar funding liquidity is squeezed. Then, the hidden leverage and maturity mismatch in pension funds' and insurance companies' portfolios – generally supposed to be long-only – could pose a policy challenge. And policies to restore the flow of dollars would still be set in a fog," BIS concluded.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
European and Arab Ministers Convene in Madrid to Address Gaza Conflict
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
UAE Offers Free ChatGPT Plus Subscriptions to Citizens
Lebanon Initiates Plan to Disarm Palestinian Factions
Iran and U.S. Make Limited Progress in Nuclear Talks
The Daily Debate: The Fall of the Dollar — Strategic Reset or Economic Self-Destruction?
Trump Administration's Tariff Policies and Dollar Strategy Spark Global Economic Debate
OpenAI Acquires Jony Ive’s Startup for $6.5 Billion to Build a Revolutionary “Third Core Device”
Turkey Weighs Citizens in Public as Erdoğan Launches National Slimming Campaign
Saudi-Spanish Business Forum Commences in Riyadh
Saudi Arabia and Spain Sign MoU to Boost SME Sectors
UK Suspends Trade Talks with Israel Amid Gaza Offensive
Iran and U.S. Set for Fifth Round of Nuclear Talks Amid Rising Tensions
Russia Expands Military Presence Near Finland Amid Rising Tensions
Indian Scholar Arrested in Crackdown Over Pakistan Conflict Commentary
Israel Eases Gaza Blockade Amid Internal Dispute Over Military Strategy
President Biden’s announcement of advanced prostate cancer sparked public sympathy—but behind closed doors, Democrats are in panic
A Chinese company made solar tiles that look way nicer than regular panels!
Indian jet shootdown: the all-robot legion behind China’s PL-15E missiles
The Chinese Dragon: The True Winner in the India-Pakistan Clash
Australia's Venomous Creatures Contribute to Life-Saving Antivenom Programme
The Spanish Were Right: Long Working Hours Harm Brain Function
Did Former FBI Director Call for Violence Against Trump? Instagram Post Sparks Uproar
US and UAE Partner to Develop Massive AI Data Center Complex
Apple's $95 Million Siri Settlement: Eligible Users Have Until July 2 to File Claims
US and UAE Reach Preliminary Agreement on Nvidia AI Chip Imports
President Trump and Elon Musk Welcomed by Emir of Qatar Sheikh Tamim with Cybertruck Convoy
Strong Warning Issued: Do Not Use General Chatbots for Medical, Legal, or Educational Guidance
Saudi Arabia Emerges as Global Tech Magnet with U.S. Backing and Trump’s Visit
This was President's departure from Saudi Arabia. The Crown Prince personally escorted him back to the airport.
NVIDIA and Saudi Arabia Launch Strategic Partnership to Establish AI Centers
Trump Meets Syrian President Ahmad al-Shara in Historic Encounter
Trump takes a blow torch to the neocons and interventionists while speaking to the Saudis
US and Saudi Arabia Sign Landmark Agreements Across Multiple Sectors
Why Saudi Arabia Rolled Out a Purple Carpet for Donald Trump Instead of Red
Elon Musk Joins Trump Meeting in Saudi Arabia
Trump says it would be 'stupid' not to accept gift of Qatari plane
Quantum Computing Threatens Bitcoin Security
Michael Jordan to Serve as Analyst for NBA Games
×