Is Deutsche Bank’s Crisis Ours?

Deutsche Bank, Germany’s largest bank, has had problems with capital and profitability for decades. But Deutsche Bank’s problems are not unique. What is troubling and significant is the near complete failure of Europe to address their banking sector, either in terms of cleaning up bad assets or raising capital to enable the cleanup.

One of the political understandings that came out of the Basel III process (a regulatory regime first introduced in 2013 to promote stability in the international financial system) was that the United States would take a harder view on mortgage related exposures and particularly intangible assets like mortgage servicing rights. The Europeans, it is said by participants, agreed to take a tougher line on bad assets inside banks and to particularly require banks to take a reserve against bad credits immediately.

Deutsche Bank and many other major U.S. banks have a significant derivatives exposure that warrants concern. During 2018, Deutsche Bank’s derivatives footprint dropped from noticed Euro 48.3 trillion to Euro 43.5 trillion (or USD 49 trillion). This is reportedly in the same league as other Wall Street banks (JP, Citi, Goldman). And all these banks are party to Fed’s USD 16.1 trillion revolving loans to domestic and foreign institutions. That’s a big secret from the American people (according to “Wall Street on Parade”).

The real problem according to Office of Financial Research, U.S., is the contagion that could spread rapidly if one big bank’s counterparty was also a key counterparty to other systematically important Wall Street banks. The black hole of derivatives is just as dark today as it was in 2008. The IMF concluded that Deutsche Bank posed a greater threat to global financial stability than any other bank as a result of its interconnections. Unless mega banks are broken up and until derivatives are restricted to those that trade on a transparent exchange, the next big crash is just one counterparty risk away.

Is the Crisis Ours?

Well if the banks that are “too big to fail” actually fail, we have a problem – and this time bailout by taxpayers may not be feasible because the quantity involved is too huge to handle. Individually, we need to prepare for the worst but pray for the best!

Reference:

Chirstopher Whalen, When Deutsche Bank’s Crisis Becomes Our Crisis www.theamericanconservative.com

Pam Martens and Russ Martens, After a $354 Billion U.S. Bailout, Germany’s Deutsche Bank Still Has $49 Trillion in Derivatives http://wallstreetonparade.com