Jeroen Dijsselbloem, the chairman of euro zone financial ministers, has said that the fine laid down by the United States against Deutsche Bank is too big and will negatively affect the economic stability of the whole region.
Deutsche is one of the euro zone’s largest banking institutions, and Dijsselbloem commented that the size of the bank would not save it from failing, although he went on to say he thought Deutsche’s impressive solvency ratio and liquidity back-ups would mean the bank would steer itself away from trouble.
“From what our analysts are telling us we are confident that Deutsche is sufficiently prepared to come out of this on their own. We are not saying they are too big to fail,” Dijsselbloem said.
“It’s up to us though, to make sure they don’t fail. To do that we need to lobby on their behalf against this U.S. fine which we feel is totally overblown, let’s hope further negotiations get the amount reduced because a fine like that is only going to hurt Europe in general,” he added.
As punishment for their role in the sub-prime mortgage affair in 2007-2009, the U.S. financial authorities want to slap a $14 billion penalty on Deutsche.
“It’s a heavy fine, especially for such an influential bank that is trying really hard to restructure its operations and strengthen itself,” said James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International in an email to clients. “The last thing in the world they need right now is this kind of capital outflow. Most experts feel this is going to be counter-productive to the macroeconomic system in the long run.”
Under new regulations brought in after the financial crisis, Deutsche Bank is finding it increasingly hard to adapt to the new environment and bring in the same kind of revenues as before. It is now significantly smaller than Wall Street competitors such as Goldman Sachs and JPMorgan.
Deutsche still have strong relationships with all the world’s most prominent financial organizations and houses, holding over 40 trillion euros of derivative positions with them.
Dijsselbloem continued, “Of course Deutsche have some creases they need to iron out, like all modern banks they need to adapt to new rules and tweak their business model. Streamlining is essential and most banks these days are focusing on becoming less complex.”
An IMF report recently singled out Deutsche as a bigger risk to the financial community than any other international banking house.
