June 29, 2018
The US Federal Reserve has certified the US subsidiary of Deutsche Bank “significant weaknesses”. The German financial institution was not crisis-proof.
The Deutsche Bank failed in the second part of the US stress test of the big financial institutions. The test has revealed some “significant weaknesses” in the US subsidiary of the largest German bank, said the US Federal Reserve.
Deutsche Bank in the US is not sufficiently prepared for crisis situations in its planning and internal processes. According to the Federal Reserve, “widespread and worrying deficits” have been identified in all areas of capital planning.
The Among other things, the US Federal Reserve noted serious deficiencies in data processing, revenue and loss forecasts, and internal control systems. These weaknesses raised concerns about the ability of the Deutsche Bank subsidiary to “set its capital needs on a forward-looking basis”.
Deutsche Bank said it invested heavily to improve its capital planning, controls and infrastructure. The DBUSA Corporation has already made progress. It will continue its efforts and continue to work with regulators, the bank said.
The first round of the stress test, the results of which had been published a week ago, the Deutsche Bank had still expected . The bank’s capital reserves were assessed. In the second part, most experts had expected that the bank would not convince the supervisors. The institute failed already in 2015 and 2016
Whether the negative test could lead to Deutsche Bank reducing its presence in the US even further than already planned anyway is unclear. Additional changes in the US, however, seem inevitable. David Hendler, an analyst with consulting firm Viola Risk Advisors, compared Deutsche Bank to a plane “that is not safe because its systems are not working, how can a bank, which is one of the world’s largest trading addresses, not have the most minimal security measures That’s amazing. ” It is not least the task of the European overseers to monitor the bank more closely. “It almost seems like they do not want to take responsibility for this bank and let the Fed play the bad boy,” Hendler said.
The stress tests were introduced in response to the 2008 financial crisis. They are part of the so-called Dodd-Frank reforms, which will arm the financial sector against further crises and save US taxpayers from costly bank bailouts. If an institution does not pass the CCAR test, the Fed may refuse to pay dividends or repurchase programs of institutions. Foreign banks may then not pay out capital to their parent companies.
Deutsche Bank belongs to the group of institutions that are particularly tightly controlled by the overseers because of their size, their interconnectedness within the financial system and their business. A few years ago, the International Monetary Fund had called the Frankfurt Institute the riskiest bank in the world. Above all, their derivatives holdings in the so-called trading book are considered very risky by many experts.
US President Donald Trump, with the argument of an “excessive over-regulation”, has recently called for a softening of these rules , which among other things excludes small and medium-sized banks from the stress tests. But big banks should continue to be tested. The 35 institutes now under investigation account for 80 percent of all assets of financial institutions in the United States.