Deutsche Bank Poses Greatest Risk to Global Financial System

logo-cropped-11As shares slide to record lows, Deutsche Bank poses a significant risk to the health of the global economy.

Source: The Wall Street Journal

FRANKFURT—Deutsche Bank AG is the riskiest financial institution in the world as a potential source of external shocks to the financial system, according to the International Monetary Fund.
“Among the G-SIBs (globally systemically important banks), Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse,” the IMF said in its Financial Sector Assessment Program.

The news came just after the Federal Reserve said U.S. units of Deutsche Bank and Spain’s Banco Santander SA were the only ones among 33 banks that failed the final round of its “stress test,” conducted to gauge how they would fare in a new financial crisis.

The IMF also said the German banking system poses a higher degree of possible outward contagion compared with the risks it poses internally.

“In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,” the IMF added.

The importance of Deutsche Bank emphasizes the need for risk management, intense supervision and monitoring cross-border exposure as well as the ability of globally systemic banks to carry out new resolution regimes, the IMF said.

A Deutsche Bank spokesman declined to comment on the IMF assessment.

Germany needs to examine whether its resolution plans for banks are operable, including a timely valuation of assets to be transferred, continued access to financial market infrastructures, and whether authorities can ensure control over a bank if resolution actions take a few days, if needed, by imposing a moratorium, the IMF said.