Re:The Epic Collapse of Deutsche Bank
by cm2187 on Sunday July 10, 2016 @11:57AM
(#12065996)
I don't know about DB specifically, so I am not making any statement on their financial health. But if they were to collapse, I think neither a bail out or a bankruptcy would be the most likely scenario.
The most likely scenario would be a bail-in, which I think few people outside of the financial community is aware of and understands.
Bail-in is the power given to the regulator to declare a bank non viable and to impose losses on its creditor over a week end, and as a result auto-recapitalise the bank, which will be open for business and healthy the following Monday. You can see it as a flash, extra-judiciary chapter 11.
The regime is designed to impose losses on regular creditors (bond holders), rather than clients taking a credit exposure to the bank through derivatives or deposits, even if in a bankruptcy these would have the same ranking and should suffer the same losses. This should reduce a lot the disruption on the market of a bank going bad.
Banks have been required to hold minimum levels of bailinable wholesale debt to ensure regulators can do a large scale bail-in.
Politically, this would be the safest route for the German gvt, as it doesn't use tax payer funds and does not let bank investors get away scars-free. Again, hypothetically. I don't know about DB specifically and to be honest am a bit surprised by the alarmist statements I read.
[edit] actually looking at their annual report, they report a fully loaded CET1 ratio of 11.1% which is decent. Banks are way better capitalised than in 2006:
The most likely scenario would be a bail-in, which I think few people outside of the financial community is aware of and understands.
Bail-in is the power given to the regulator to declare a bank non viable and to impose losses on its creditor over a week end, and as a result auto-recapitalise the bank, which will be open for business and healthy the following Monday. You can see it as a flash, extra-judiciary chapter 11.
The regime is designed to impose losses on regular creditors (bond holders), rather than clients taking a credit exposure to the bank through derivatives or deposits, even if in a bankruptcy these would have the same ranking and should suffer the same losses. This should reduce a lot the disruption on the market of a bank going bad.
Banks have been required to hold minimum levels of bailinable wholesale debt to ensure regulators can do a large scale bail-in.
Politically, this would be the safest route for the German gvt, as it doesn't use tax payer funds and does not let bank investors get away scars-free. Again, hypothetically. I don't know about DB specifically and to be honest am a bit surprised by the alarmist statements I read.
[edit] actually looking at their annual report, they report a fully loaded CET1 ratio of 11.1% which is decent. Banks are way better capitalised than in 2006:
https://www.db.com/ir/en/download/Deutsche_Bank_Annual_Repor...