IMF Names Deutsche Bank As Biggest Systemic Risk To Global Finance

The IMF never shies away from making controversial statements, albeit their most recent one may cause a lot of debate. According to the financial superpower, Deutsche Bank is the biggest threat to our global economic ecosystem. It is not the first time allegations like these take place, as the position of Deutsche Bank has been questioned for the past three years.

Deutsche Bank Can End It All

TheMerkle_Deutsche Bank IMF Global Economy

That seems to be the consensus among IMF members, at last. Deutsche Bank is the institution with the largest derivative exposure, totaling over 55 trillion Euro. Despite that “portfolio”, the Deutsche Bank failed the Federal Reserve’s stress test for the second year in succession. If a financial crisis were to happen, and it only seems a matter of time at this point, DB would send the world economy into a downward spiral without end.

The IMF is clear in the statement, as they feel the bank is the “most significant net contributor to systemic risks.” To make matters even worse, Deutsche Bank stocks were sent crashing two days ago, continuing their overall downward trend throughout 2016. It doesn’t take a degree in finance to realize things aren’t looking very good.

“Among the G-SIBs, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.”
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To put this into terms, everyone can understand: if the Deutsche Bank fails, the rest of the world will follow. Europe will feel the brunt of this downward spiral, but ripple effects will reach the US and Asia as well. Not a scenario anyone will be looking forward to, but it is something to take into account for the time being.

The IMF advised Germany to take a closer look at their liquidation plans and ensure they are operable. In fact, it is possible authorities may need to take control over the bank, including the issuance of a moratorium. Things are looking very bleak, to say the least, and a lot of eyes will be watching every move Deutsche Bank makes.

JP Buntinx
June 30, 2016