- Some Disturbing Figures About The Upcoming Banking Crisis
by Simon, Black, https://www.sovereignman.com/
…. Deutsche Bank has seen a lot in its years; multiple world wars and the devastation of Europe. Hyperinflation in the Weimar Republic. Nazi Germany. The bank even outlasted its own country, as the Kingdom of Prussia was formally abolished in 1947. But as the world learned in 2008 when the 158-year old investment bank Lehman Brothers went bust, even giant, centuries-old financial institutions can collapse.
Today, banks are up to the same tricks as they were 10 years ago, except they’ve taken things to a whole new level. And Deutsche Bank is leading the charge. One of the major issues in the 2008 crisis was that banks were over-leveraged and had very thin levels of capital. In other words, the banks’ rainy-day reserve funds as a percentage of their overall balance sheets were extremely low, so even a small loss in their investment portfolios would cause financial Armageddon.
That’s precisely what happened. Lehman Brothers famously had a capital ratio of less than 3% of its assets. So when the value of its assets fell by more than 3%, the bank was finished. Well-capitalized banks are supposed to have double-digit capital levels while making low risk investments.
Deutsche Bank, on the other hand, has a capital level of less that 3% (just like Lehman), and an incredibly risky asset base that boasts notional derivatives exposure of more than $70 trillion, roughly the size of world GDP. Even the IMF has stated unequivocally that Deutsche Bank poses the greatest risk to global financial stability. And the IMF would be right… except for all the other banks.
Because, meanwhile in Italy, nearly the entire Italian banking system is rapidly sliding into insolvency. Italian banks are sitting on over 360 billion euros in bad loans right now and are in desperate need of a massive bailout. IMF calculations show that Italian banks’ capital levels are among the lowest in the world, just ahead of Bangladesh. And this doesn’t even scratch the surface of problems in other banking jurisdictions.
Spanish banks have been scrambling to raise billions in capital to cover persistent losses that still haven’t healed from the last crisis.