Deutsche Bank owes $14 billion to the United States for its role in 2008 mortgage fraud crisis. The bank says it was thinking $3-4 billion and it won’t pay. The reality is it can’t pay even if it wanted to. The ongoing “what if” stress tests show it as the most vulnerable to failing in a financial panic. Up until today, Merkel’s government has said it won’t step in to save the bank (ala Lehman brothers). Today, that changed to “might step in”. The stock is tanking.
Why should we care if a German Bank goes under? Deutsche Bank is the 11th largest bank in the world with $1.9 trillion in assets. (China has 4 of the top 5)
From the US perspective, Deutsche is beyond “too big to fail” – it is a Primary dealer In US securities at the New York Federal Reserve, meaning it has direct access to buy and sell US Treasury instruments and engage in things like Repurchase agreements, which are used to fudge the liquidity of banks.
Germany is the only thing holding the EU together. We remember how the failure of Lehman almost sent the Global banking system over the cliff… but Lehman was a US Bank. The US government, FDIC and the Federal Reserve government proxy have no obligation to intervene. Deutsche is backed by the Euro, not the US dollar.
The interbank Euro LIBOR rate is negative, meaning banks are willing to lose money to avoid holding Euros overnight. The Euro is about as healthy as Hillary Clinton.