The US divisions of Deutsche Bank, the Germany's biggest bank, failed a crucial stress test on Wednesday after the Federal Reserve deemed its financial foundation too weak to withstand a crisis like the one that threatened to crash the global economy in 2008.
Santander, the biggest investment banks in Spain, also failed the Fed's stress test...
The Fed faulted the capital plans of some 12 to 14 percent of Deutsche Bank's US operations, saying they showed "numerous and significant deficiencies."
Deutsche Bank not only failed the Stress Test but also had many warnings from internal risk management that were ignored :
According to Reuters: « In the weeks leading up to the U.S. Federal Reserve's annual stress test of major banks, a former risk executive of Deutsche Bank AG repeatedly warned senior managers of the German bank's U.S. unit that they were painting a far too rosy picture of the bank's health.
The warnings weren't about this year's stress test. They were written by William Broeksmit in December 2013 and January 2014 as the bank was preparing its Fed-mandated, internally run stress test. At the time, Broeksmit was serving as a director of the U.S. unit.
The bank needed to "stress harder," Broeksmit wrote in one email to senior managers. The bank's forecasts were "way too optimistic," he wrote in another. In others, he said that forecast losses were "way too small compared to history," and that the full board had to be briefed on the discrepancies, which were "way too important" to be glossed over.
Deutsche Bank's senior U.S. managers rebuffed Broeksmit's warnings, according to the emails, copies of which were reviewed by Reuters.
Deutsche Bank was exempted last year from submitting its portfolio to a Fed-run stress test, but it was still required to run its own assessment using the same scenarios as other banks.
Broeksmit was found hanged in his London home on Jan. 26 last year. After a coroner's inquest, his death was ruled a suicide.
On Wednesday, the Fed validated many of Broeksmit's concerns when it said the U.S. unit failed the regulator's latest test of banks' risk-management capabilities.»
Just another big bank which will have to pay a fine?
No... because Deutsche Bank is the bank with the most exposure to derivatives in the world... The total amount of the German bank’s derivatives is astounding: €55 Trillion!
A sum equal to 20 times Germany’s GDP, or five times the Euro zone’s GDP.
Of course, the Derivative Bubble won't pop unless something happens in the real world so Deutsche Bank has no worries at all...right? Not according to Standard & Poors report in August 2014:
"Deutsche Bank carries larger exposures to the so-called eurozone periphery than many peers, largely due to its retail and commercial banking subsidiaries in Italy and Spain as well as positions taken by its investment bank. Based on the country of domicile of the primary counterparty, its aggregate net credit risk exposure to Greece, Ireland, Italy, Portugal, and Spain was €42.4 billion at June 30, 2014."
So maybe there is a reason to worry about the collapse of the global financial system...