by Craig Wilson, DailyReckoning:
Deutsche Bank is the largest banking lender in Germany and one of the biggest banks in Europe. The German banking goliath is also one of the most interconnected financial institutions worldwide and has reach in nearly every international market.
As discussion over whether Deutsche Bank will be allowed to fail, many reports go into details about comparisons to 2008’s financial crisis. The BBC’s Simon Jack even called the bank the “world’s most dangerous bank” following an IMF report on German banking. The major fear is that the trouble Deutsche Bank has created could trigger a worldwide reaction creating a loss of confidence.
Here are five things you should know about the bank and why it is important to pay attention to in the coming weeks and months ahead.
1. U.S Dep. of Justice is demanding $14 billion in fines.
While the U.S Department of Justice (DoJ) is keenly aware that the massive german bank could not pay this sizable fine, it does know that the German government could. Multiple media sources have reported that Germany could not afford to pay the fines demanded on behalf of the U.S government. This statement as much a political argument as a financial one. If the German government was to act, it would position its leadership under public scrutiny – but it could undoubtedly pay the charges for illicit activity. The bank would like to reach a settlement negotiation with the U.S DoJ prior to the November 8th elections.
2. Deutsche Bank is a “Too-Big-To-Fail” Bank but Chancellor Angela Merkel says Germany Will Not Bail Out the bank.
According to a June 2016 IMF report the bank is a “global systemically important financial institution.” That translates to the bank being extremely interconnected. According to the same IMF report, Deutsche Bank could pose as a source of outward spillovers to most other publicly-listed banks and insurers if it was to fail. The German Finance Ministry has said publicly that “The federal government is preparing no rescue plans.” According to data analytics firm Coalition, Deutsche Bank is the 2nd largest credit trading bank in the world. Deutsche’s outstanding derivative positions stands at around 42 trillion euros, that is only 12 times the size of the German economy.
3. The German Bank Received a U.S. Bailout Twice as Big as Lehman Brothers.
According to the Government Accountability Office (GAO), Deutsche Bank received loans totaling $77 billion under the Federal Reserve’s Primary Dealer Credit Facility (PDCF) and $277 billion in cumulative loans under the Term Securities Lending Facility (TSLF) for a total of $354 billion. According to the same report, Lehman Brothers received only $183 billion in Fed emergency lending. The story of Lehman was the catalyst to the global financial crisis. While Deutsche Bank might not be in the same position as the failed U.S bank, it is worth noting that the U.S government is just as vested in this private foreign business – and equally concerned over global stability. The confidence that was lost in Lehman could very well be lost within Deutsche’s investors and stakeholders.
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