Deranged Rhino Posted August 11, 2016 Share Posted August 11, 2016 Asking because I don't know: Aug 9 Deutsche Bank had the highest potential capital shortfall, 19 billion euros ($21 billion), in a study of 51 European banks using U.S. Federal Reserve stress test methods, German economic research institute ZEW said. "European banks lack sufficient capital to offset the losses expected in the case of another financial crisis," the ZEW said in a statement on Tuesday. ZEW Finance Professor Sascha Steffen worked with New York University Stern School of Business and the University of Lausanne researchers to run stress tests used by the Fed in 2016 and the European Banking Authority (EBA) in 2014 to compare capital needs and leverage. Using the Fed's approach, the 51 European banks showed a total capital shortfall of 123 billion euros, with the largest gaps at Deutsche Bank, Societe Generale (13 billion euros) and BNP Paribas (10 billion euros). Societe Generale and BNP have market capitalisations of 26 billion euros and 55 billion euros, respectively, well above the study's theoretical capital gap. Deutsche Bank, which has a market capitalisation of less than 17 billion euros, disagreed with ZEW's calculation. http://www.reuters.com/article/eu-banks-tests-idUSL8N1AQ5AG Link to comment Share on other sites More sharing options...
GG Posted August 11, 2016 Share Posted August 11, 2016 Aren't you the guy who laughed off Brexit as a non event? Link to comment Share on other sites More sharing options...
boyst Posted August 11, 2016 Share Posted August 11, 2016 Is that Howard stern business school at nyu? Bababooey Link to comment Share on other sites More sharing options...
drinkTHEkoolaid Posted August 11, 2016 Share Posted August 11, 2016 I'm curious if this is the top of the iceberg and how many other banks follow suit. I'm not an economist by any means so I can't pretend to understand all the ramifications of this, but it can't be good. Perhaps it's the canary in the coal mine testing the overall health of a global economy and debt load. Link to comment Share on other sites More sharing options...
Deranged Rhino Posted August 11, 2016 Author Share Posted August 11, 2016 Aren't you the guy who laughed off Brexit as a non event? Nope. To me this is a potential reason why Brexit happened. Germany's going to want/need someone to bail them out, and it's not going to be Britain. I'm curious if this is the top of the iceberg and how many other banks follow suit. I'm not an economist by any means so I can't pretend to understand all the ramifications of this, but it can't be good. Perhaps it's the canary in the coal mine testing the overall health of a global economy and debt load. That's how I take it, especially considering what happened in 2008. But, that's why I'm asking folks who understand the economy better to chime in and help make sense of the ramifications of this. Link to comment Share on other sites More sharing options...
drinkTHEkoolaid Posted August 11, 2016 Share Posted August 11, 2016 Nope. To me this is a potential reason why Brexit happened. Germany's going to want/need someone to bail them out, and it's not going to be Britain. That's how I take it, especially considering what happened in 2008. But, that's why I'm asking folks who understand the economy better to chime in and help make sense of the ramifications of this. Agreed. My fear is that what is coming next will be worse than 2008. 2008 seems to largely been "fixed" with a pretend band aid of multiple quantitative easings. There never really seems to have been a true correction or recovery and interests rates are already so low or negative. I don't know where the economy goes from here. Link to comment Share on other sites More sharing options...
Deranged Rhino Posted August 11, 2016 Author Share Posted August 11, 2016 Agreed. My fear is that what is coming next will be worse than 2008. 2008 seems to largely been "fixed" with a pretend band aid of multiple quantitative easings. There never really seems to have been a true correction or recovery and interests rates are already so low or negative. I don't know where the economy goes from here. Link to comment Share on other sites More sharing options...
GG Posted August 11, 2016 Share Posted August 11, 2016 Nope. To me this is a potential reason why Brexit happened. Germany's going to want/need someone to bail them out, and it's not going to be Britain. You have it precisely backwards. DB is a weakly positioned bank, but it's silly to think that Germany would be looking to UK to bail itself out. That's the kind of financial logic I'd expect from trump. Bank capital is always a binary outcome, either a bank has enough money to live another day, or it doesn't. So while all these stress tests to gauge a bank's sustainability are decent barometer, they're useless in a real world scenario. A bank's capital position will not help it, if it cannot find funds to roll today's obligations to tomorrow. These are always the reasons banks fail. So the best way to ensure that banks don't fail is to remove the possibilities of extreme market shocks that could cause a bank's liquidity to spiral out of control. With London being a huge global financial center, Brexit is throwing a monkey wrench into an orderly financial process, because everyone is trying to figure out what business is going to go where. And because financial shocks always hits the markets from areas unknown, the mere process of exiting the EU creates the potential for risks that nobody can quantify at this point. Chances are, nothing major happens. If it does, look out. Link to comment Share on other sites More sharing options...
B-Man Posted August 11, 2016 Share Posted August 11, 2016 Hey DR, Is this potentially as bad as it sounds? Better Late Than Never - NBC.com www.nbc.com/better-late-than-never Henry Winkler, William Shatner, Terry Bradshaw and George Foreman take the trip ... on an epic adventure throughout Asia with its new alternative comedy series Link to comment Share on other sites More sharing options...
Deranged Rhino Posted August 11, 2016 Author Share Posted August 11, 2016 You have it precisely backwards. DB is a weakly positioned bank, but it's silly to think that Germany would be looking to UK to bail itself out. That's the kind of financial logic I'd expect from trump. Bank capital is always a binary outcome, either a bank has enough money to live another day, or it doesn't. So while all these stress tests to gauge a bank's sustainability are decent barometer, they're useless in a real world scenario. A bank's capital position will not help it, if it cannot find funds to roll today's obligations to tomorrow. These are always the reasons banks fail. So the best way to ensure that banks don't fail is to remove the possibilities of extreme market shocks that could cause a bank's liquidity to spiral out of control. With London being a huge global financial center, Brexit is throwing a monkey wrench into an orderly financial process, because everyone is trying to figure out what business is going to go where. And because financial shocks always hits the markets from areas unknown, the mere process of exiting the EU creates the potential for risks that nobody can quantify at this point. Chances are, nothing major happens. If it does, look out. Hey DR, Is this potentially as bad as it sounds? Better Late Than Never - NBC.com www.nbc.com/better-late-than-never Henry Winkler, William Shatner, Terry Bradshaw and George Foreman take the trip ... on an epic adventure throughout Asia with its new alternative comedy series No. It's worse, far worse than you could possibly imagine. Link to comment Share on other sites More sharing options...
DC Tom Posted August 11, 2016 Share Posted August 11, 2016 Hey DR, Is this potentially as bad as it sounds? Better Late Than Never - NBC.com www.nbc.com/better-late-than-never Henry Winkler, William Shatner, Terry Bradshaw and George Foreman take the trip ... on an epic adventure throughout Asia with its new alternative comedy series "Better Late Than Never" is just a working title. It'll air as "Tenth Circle of Hell." With the tag line "Making the makers of 'Cavemen' look like geniuses." Link to comment Share on other sites More sharing options...
Deranged Rhino Posted August 11, 2016 Author Share Posted August 11, 2016 Link to comment Share on other sites More sharing options...
DC Tom Posted August 11, 2016 Share Posted August 11, 2016 Really, you have to ask around...there's gotta be a job in some production company of "Director of Social Media Studio Trolling," and I'm goddamn perfect for it. Link to comment Share on other sites More sharing options...
Pine Barrens Mafia Posted August 11, 2016 Share Posted August 11, 2016 Chances are, nothing major happens. If it does, look out. Chances are nothing major happens? Really? The banking system is a house of cards. I'd wager next time citizens won't take too kindly to bank bailouts. Link to comment Share on other sites More sharing options...
Deranged Rhino Posted August 11, 2016 Author Share Posted August 11, 2016 Really, you have to ask around...there's gotta be a job in some production company of "Director of Social Media Studio Trolling," and I'm goddamn perfect for it. On it. Link to comment Share on other sites More sharing options...
GG Posted August 11, 2016 Share Posted August 11, 2016 (edited) Chances are nothing major happens? Really? The banking system is a house of cards. I'd wager next time citizens won't take too kindly to bank bailouts. No **** Sherlock. Any bank can be brought to its knees if suddenly there's a rash of funding demands that it cannot satisfy. That includes something as plain vanilla as your depositors suddenly wanting to take all their money out at once. (Have another watch of It's a Wonderful Life for a banking refresher) The goal is not to get into a bailout position in the first place, and hopefully regulators have learned from King's, Paulson's and Geithner's mistakes that you don't let a bank go under to teach them a lesson. Edited August 11, 2016 by GG Link to comment Share on other sites More sharing options...
Azalin Posted August 11, 2016 Share Posted August 11, 2016 No **** Sherlock. Any bank can be brought to its knees if suddenly there's a rash of funding demands that it cannot satisfy. That includes something as plain vanilla as your depositors suddenly wanting to take all their money out at once. (Have another watch of It's a Wonderful Life for a banking refresher) The goal is not to get into a bailout position in the first place, and hopefully regulators have learned from King's, Paulson's and Geithner's mistakes that you don't let a bank go under to teach them a lesson. Banking is one of the things that I know least about, so please bear with me on this. If a bank shouldn't be allowed to go under, what is there to keep it from conducting business however it pleases, knowing that it's insulated from failure by government support? I understand that the consequences of a bank failing can be catastrophic, but shouldn't they operate under the same market and economic rules that other businesses do? Link to comment Share on other sites More sharing options...
GG Posted August 11, 2016 Share Posted August 11, 2016 Banking is one of the things that I know least about, so please bear with me on this. If a bank shouldn't be allowed to go under, what is there to keep it from conducting business however it pleases, knowing that it's insulated from failure by government support? I understand that the consequences of a bank failing can be catastrophic, but shouldn't they operate under the same market and economic rules that other businesses do? The biggest difference between banks (financial companies, really) and other companies is that fincos can literally disappear overnight, while it's hard for regular companies to do so. Regulators know this, and that's why banks are subject to much stricter supervision than other industries. I think people learned the lesson and now there's more access to emergency funding, in exchange for heavier regulation, formal wind-down procedures and forced exits from some businesses. The biggest problem in 2008 was two-fold - there were different accounting rules for different fincos, so some banks were allowed to mask the paper losses they were accumulating, while others had to report the paper losses on a daily basis. The reason for this is that the regulators give banks some leeway to carry temporary losses up to a certain amount, because these banks usually have access to the central bank lender of last resort. The banks who have to report the paper losses on a regular basis usually don't have access to central bank funding, and that's why you need to see a daily settling of its liabilities to make sure they stay out of trouble. This was the Lehman trap. Lehman started booking heavy paper losses, and was slowly losing access to fund its business. When they realized it was getting too late to save the company, they struck a quick sale to Barclays. The UK regulators turned that down fearing unknown costs of a Lehman bailout by Barclays. Lehman then petitioned Paulson & Geithner to borrow emergency funds from the Fed, and were declined. The rest is history. So to recap, the regulators were leery of funding $10 billion, and walked into a multi-trillion global mess. Link to comment Share on other sites More sharing options...
Pine Barrens Mafia Posted August 11, 2016 Share Posted August 11, 2016 Would a division of investment banking and consumer banking not be prudent at this point? Link to comment Share on other sites More sharing options...
GG Posted August 11, 2016 Share Posted August 11, 2016 Would a division of investment banking and consumer banking not be prudent at this point? Nope. It was the investment banks that didn't have the safety nets of the commercial bank parents that ran aground. Link to comment Share on other sites More sharing options...
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