The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes. Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives. In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve. As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system. But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.
During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great. Continue reading →
This is getting to be a habit. Previous late summer holidays by this correspondent coincided with the run on Northern Rock, and subsequently with the failure of Lehman Brothers. So the final crawl towards the probable nationalisation of Deutsche Bank came as no particular surprise this year, but it is tiresome to relate nevertheless.
The 2015 annual report for Deutsche Bank runs to some 448 pages, so one rather doubts if even its CEO, John Cryan, has read it all, or has a complete grasp of, for example, its €42 trillion in total notional derivatives exposure.Continue reading →
It looks like Deutsche Bank is heading toward failure. Why might we be concerned?
The problem is that Deutsche is too big to fail — more precisely, that the new Basel III bank resolution procedures now in place are unlikely to be adequate if it defaults.
Let’s review recent developments. In June 2013 FDIC Vice Chairman Thomas M. Hoenig lambasted Deutsche in a Reuters interview. “Its horrible, I mean they’re horribly undercapitalized,” he said. They have no margin of error.” A little over a year later, it was revealed that the New York Fed had issued a stiff letter to Deutsche’s U.S. arm warning that the bank was suffering from a litany of problems that amounted to a “systemic breakdown” in its risk controls and reporting. Deutsche’s operational problems led it to fail the next CCAR — the Comprehensive Capital Analysis and Review aka the Fed’s stress tests – in March 2015. Continue reading →
If you’ve been reading here long enough, this shouldn’t come as a shock, especially after knowing that Deutsche Bank is exposed to over $72 trillion in derivatives exposure. To put this in perspective, and as the article states, Germany’s humble GDP currently sits at only $3.4 billion. For further perspective, the $3.4 billion GDP is 0.00004722222% of the $72 trillion in exposure.
Either way, you don’t have to be a financial expert to see Germany has a slight problem on its hands. Litigation charges are likely the least of its worries. The United States economic woes (i.e. debt) might be a seriously problem, but Germany’s are astronomical when considering such things as the debt-to-GDP ratio. It wouldn’t be surprising at all to see Germany collapse and become the falling dominoes catalyst that leads the world economy into a global depression.
The global collapse is a sure bet and is a matter of when, not if. It’s almost a sure bet that Germany will lead the way. The United States is more of an expert in the game of kicking the can down the road.
GERMANY could force the European Union into ruin after Deutsche Bank’s share price plunged following the country’s biggest lender’s first annual loss since the financial crisis.
The German lender posted a full year loss of £5.1 billion (€6.8bn) on Thursday – higher than the expected €6.7bn million.
With losses of €2.1bn in the fourth quarter of 2015-16, fears of the entire eurozone toppling are becoming an increasing reality.