Could Deutsche Bank bring down the EU banking system?
Deutsche Bank, the largest bank in Germany, has just posted it's third annual loss in a row. Despite announcing that it would reduce staff numbers by 7,000, it's share price is in free-fall.
They are getting into dangerous territory. The lower the share price, the more likely they are undercapitalised under banking rules. That means they will either need to raise capital somehow (a rights issue) or cut costs or reduce the number of loans on their books. In the worst case scenario they will need a bailout.
But under EU rules, forced through by Germany, that became effective as of 1 January 2016, they would need a bail-in first of all the depositors and bond holders.
The EU bail-in rules have brought much hardship to Italy which has used them several times to deal with bank failures and which has wiped out retired people and savers. It would be massively ironic if this happened to a German bank.
In 2016, the IMF identified Deutsche Bank as the world's riskiest bank. That's because if they implode they might take down other banks.
Hopefully those banks exposed to Deutsche took heed of the IMF's warning and started to reduce their exposure in the last two years. If they haven't they have only themselves to blame.
Just to update on this. The US has put Deutche Bank on it's troubled list. It's shares fell further.
I'm pretty sure this saga has been going on for years. I remember journalists writing about this in 2014. But somehow they struggle on. I guess the German govt is providing a lot of support behind the scenes.
You are right, It has been going on for years. One reason the EU kept Greece within the eurozone was bevause they wanted the bailout money (which came from across the world via the IMF) going to repay Deutsche Bank and keep it from collapsing.