NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"

Tyler Durden's picture

First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems."

What could possibly go wrong? Well... this. Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That's a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of... the world.


More from WSJ:

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."


The criticism from the New York Fed represents a sharp rebuke to one of the world's biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations.


The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made "no progress" at fixing previously identified problems. It said examiners found "material errors and poor data integrity" in its U.S. entities' public filings, which are used by regulators, economists and investors to evaluate its operations.


The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.




Deutsche Bank's external auditor, KPMG LLP, also identified "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013, according to a Deutsche Bank email reviewed by the Journal.

Oh wait, so those €55 trillion in derivatives are actually completely fabricated? Well if that doesn't send the S&P 500 limit up nothing will.

DB's response is the generic one already attempted by that other permacriminal bank, Barclays, which hired a few hundred compliance people after it was revealed that the British firm was manipulating and rigging pretty much every product and market it was involved in.

"We have been working diligently to further strengthen our systems and controls and are committed to being best in class," a Deutsche Bank spokesman said Tuesday. As part of this, he said, the bank is spending €1 billion globally and appointing 1,300 people, including about 500 compliance, risk and technology employees in the U.S. Mr. Muccia declined to comment.

Sadly for now what this latest Pandora's box means is that confidence in Europe's insolvent banks just crashed with a bang once again, not that it would be reflected in the stock's rigged price of course: rigged most likely by Deutsche Bank among other of course.

The New York Fed's concerns also pose a challenge for Deutsche Bank's longtime finance chief, Stefan Krause, who is ultimately responsible for the company's financial figures and has been spearheading efforts to improve the quality of the bank's reporting.


The concerns from regulators strike at the heart of an issue plaguing many of the world's big banks: Some investors lack confidence in the integrity of their numbers. Such fears have been especially prevalent in Europe.

Then again, none of DB's numbers actually matter: if the banks needs a bailout the Fed will promptly step in, and today's advisory has one simple end point, which happens to be the same as the recent BNP $9 billion fine - don't even dare to side with Putin over the US. Because you sure have big bank over there Germany... It would be a pity if the NY Fed i) revealed just how insolvent it truly was and ii) decided not to bail it out subsequently.

* * *

As for Deutsche Bank's response perhaps the simplest and most effective one would be for the Frankfurt megabank to tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.

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IndyPat's picture

...There are actually very few U.S. Dollars in existence...

There are shipping palettes of paper stocked in every major country.

...I don't see how the currency can be destroyed -at least domestically...

Well, it's a global thing, ya dig? As in world reserve currency.
But if you want to consider the domestic angle, how long do you think a hyper inflated circle jerk will last?

ThroxxOfVron's picture

"There are shipping palettes of paper stocked in every major country."


Naked Emission/Greenbacks?    MMT cum-shot/Titanium puck ploy?   FED balance sheet/off balance sheet expansion?


"Well, it's a global thing, ya dig? As in world reserve currency.
But if you want to consider the domestic angle, how long do you think a hyper inflated circle jerk will last?"


The Corporations WILL pay the W2 earnings cut to Treasury or the IRS WILL be knocking.  

You think BofA or Walmart is gonna stop paying the W2 cut to the I.R.S. ??

How about the City of New York or Chicago?  


Wage-price spiral my ass.  Domestic hyper-inflation cannot happen without a Tax Mutiny of the Big Corporations.  

-& guess what; the Corporations are being gifted with cheap labor and even cheaper credit presently, fantasy accounting rules, hiding from taxation via offshore entities and derivatives fraud, to say nothing of the captured/subsidized/shielded markets of Education and Health Care and the MIC, etc...

Tall Tom's picture

There are $12 Trillion Dollars outstanding sitting in Foreign Central Bank vaults.


That amounts to rougly 70% of US GDP.


Foreign Central Banks WILL abandon the USD in Rapid Succession when the USD loses World Reserve Currency status. (Nobody wants to get caught holding the Old Maid) Then they will spend them in the USA and buy up everything that is not bolted down. They will be seeking HARD Goods as something is better than nothing. They will not be caring about price as they will be seeking VALUE.


(A fool knows the PRICE of EVERYTHING and the VALUE of NOTHING. The wise man knows about the VALUE of things and PRICE is a SECONDARY CONSIDERATION. VALUE means UTILITY. Do not be a fool.)


That massive influx of Currency, DOMESTICALLY, will spike Monetary Velocity.  That is all that is needed.


(Yes currently Monetary Velocity is declining. I know. I agree. But it cannot decrease forever.  A Monetary Velocity of ZERO means that there IS NO ECONOMY as nobody is trading. Yes Monetary Velocity is approaching ZERO. But that rate will REGRESS to the Historical Norm.) 


Price Inflation in the USA takes off as a result and it becomes a Daisy Chain, a cascade, as everybody attempts to divest of their Dollars, Foreign and Domestic, coincidentally, all at once..


WHEN the USA loses World Reserve Currency status that will be the net result. The ONLY REASON that the US Dollar has DEMAND is that it is used to acquire OIL. But that is being eroded RAPIDLY.




With the loss of World Reserve Currency status that lack of confidence will have been wrote.


The Fuel for a Hyperinflationary Inferno of apopcalyptic proportions ALREADY EXISTS. They do not have to print another Dollar and it still will happen.


All that it will take is a LACK OF CONFIDENCE to spark off that inferno.


It is like the Brush that has not been burned up for the past Six of Seven Years here in San Diego County. The stored Potential Energy is there. It already exists. On a Santa Ana day one carelessly lit cigarette butt thrown from a Car window will set it off. It is not a question of IF. It is just a question of WHEN.


The longer that it takes for this to happen just makes the event even more certain with worse results. Like more deadwood and undergrowth in the San Diego County Chapparell Country accumulates, more Currency will be created to provide more fuel for the Hyperinflationary Inferno. Thus there will be even more desruction as it is delayed.


I am sorry. I really and truly am sorry. But I cannot change the underlying truths.


Hedge accordingly. Buy some Gold as insurance and do not get totally wiped out.

Hulk's picture

What you are missing MsC is that this shit all nets out to zero, one need only look at the  AIG example  in 08 to see how this process works !!!


MsCreant's picture

Took me a while, but I think you have it. Here I go with a story line:

The Fed fight with DB is theater. DB lies down and plays zombie conduit for "insurance" payoffs to go to the rest of the system. I joked on the other page "can they use Torrent to print." They save the system for another round of Ponzi. We do this shit again for another 7 years unless other things fail and the demolition can't be controlled. With each successive failure, we get used to the consolidation (or never notice because we don't pay attention, or worse, we get innured to it). 

The only thing that will stop this thing is resource depletion, natural disasters, or manmade disasters (war, nuke plant goes up, pollution).

HOLY SHIT. We are so fucked.

Edit: Add this lil tidbit someone else posted earlier to the mix and it shapes up more...

U.S. Said Poised to Label MetLife Systemically Important


ThroxxOfVron's picture

"this shit all nets out to zero, one need only look at the  AIG example  in 08 to see how this process works !!!"

I strongly disagree.  

Insurance and Deriviatives are both rather random contracts or conracts of perspective/speculation in the sense that any one random person is unlikely to ascribe the same value as another.

So, Goldman Sachs claimed that the MBS crap it had created -and was shorting- was deficient by a certain amount and AIGFP disagreed...  At the point that AIGFP foolishly began yielding monies to Goldman those securities were practically untradeable.  

There was no price discovery.  

...& what did AIG's credit rating have to do with the MBS hedges?

The fact is Goldman's demands vacillated wildly -up and down- by literally Billions of Dollars!



"Things quieted between Goldman and A.I.G. Financial Products until Sept. 11, when Goldman asked for another $1.5 billion in collateral based on its marks. This was the beginning of the end. On Nov. 2, Cassano said, Sherwood gave him a “heads up” that Goldman was increasing its collateral call to $2.8 billion, in addition to the $450 million it already had. “We’re not going to pay that amount,” Cassano said he told Sherwood, and that the latter replied, “Yea, I didn’t think you would.” And, according to the crisis commission report, Cassano soon faced other problems: by Nov. 14, both Société Générale, a large French bank, and Merrill Lynch had asked the A.I.G. subsidiary to post collateral to them as well, in the amounts of $1.7 billion and $610 million, respectively, based largely on the Goldman precedent."

maneco's picture

Pot calling the kettle black!

TheReplacement's picture

No.  That is the pot telling the kettle to get back in line and sanction Russia.  Black has nothing to do with it.  They only see red (blood) and green (money).  Once Germany does it's duty against Russia they will be in line to get their redgreen (blood money).

SmittyinLA's picture

I thought Deutsche Bank 

passed all their bad paper to the US treasury? 

ekm1's picture

This has got nothing to do with sanctions on Russia, nada, nicht, zero, zilch.


This is civil war between primary dealers as to who is going to die as sacrificial lamb.

Al Huxley's picture

I think the market will have to show some signs of fracture before they have that civil war - right now everybody is 'dancing' like its 2006.  Planning for the great reckoning would be premature (and way more foresightful than these fuckers are capable of).

oudinot's picture

The US is broke.   They need to discover revenues so they  fine everything that moves.

They fined the American banks for their CMO/mortgage fraud, the American banking  brass cried in their beer complaining so the US govt. fines Europen banks for whatever reason that is convenient..

Its that simple.

Other than it seems the French bank, BNP's  $8.9 Billion fine, was related to the Russian purchase of a French Mistral ship.

Perfecthedge's picture

Turns out the US is nowadays like that corrupt cop in Mexico that stops you for a little "help".  Understood.  Makes perfect sense.

Oudinot: Don't forget to mention that they will also fine their own customers (confiscating) or in fine English: Bail ins.


what's that smell's picture

note to zionists and cockroaches everywhere (in case ya didn't get the memo):


get underground now.

RaceToTheBottom's picture

I am expecting a dinner invitation from Jamie Dimon for my expected bail in.

Do you think New Years is too pushy?

QQQBall's picture

those weren't fines - those were payola

AnAnonymous's picture

The US is broke.

And the countries in Europe where 'americans' reside are not broke?

As it goes, 'americans' have consumed the world far beyond the point of sustainability, they have consumed the future in a way they can not substitute for it, the promised technological get away (to the stars and beyond) is failing to materialize. In this regard, being broke does not matter, on the contrary. The more broke, the better as it means you've consumed when consumption was still possible.

'Americans' keep doing what they've been doing since 1776, July, 4th: running a business of farming the poor, extorting the weak.
This business will be run as long as 'americans' are able to run it.

'Americans' made a miscalculation though, or prefer to hide themselves from reality: they thought that the sheer number of people outside 'americans' was enough to preserve themselves from feeding the 'american' machine.

They were wrong but the temptation of concentring wealth was stronger so they jumped in.

Result: as people outside of 'americans' are saturated, now, 'americans' must feed the machine.

Utah_Get_Me_2's picture

Are you remotely capable of thinking outside the collectivist, anarcho-socialist box you've firmly placed yourself?  

Yen Cross's picture

" An anon a clown"

has taken the last (4) years and hires a few party puppets.


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oudinot's picture

Yeah , you are right all western countries are broke but China, Russia are not.  Russia has only a 9% Debt to GDP-thanks to their going tits in 98, but there it is.

Not everyone's broke.

IndyPat's picture

....running a business of farming the poor, extorting the weak....

Not sure if you get the news over there in your technocratic utopia, but people find pleas for help written in Chinese sown into garments and other cheap shit made over there in slave factories.
Better own your end of the con.

When Levi's were made here, they didn't have to handcuff people to the sowing machines or install suicide prevention nets at the factory.

You really need to get your shit straight.

undercover brother's picture

Hey NY Fed:  I double dog dare you not to bail them out!!!

Duc888's picture






The fed had dined on shit sandwhiches since 2008.  What was it again that they underwote?

Open YOUR books you Fed fucks.

Nehweh Gahnin's picture

DO it, NY Fed, DO IT!  I dare ya...  ~ Angie

It would be really nice to see that storm cloud start to dump.

NOTaREALmerican's picture

Ya know,  just like there's two DIFFERENT Wall Street Journals: the editorial section and the "reporter" section, there's also two different Feds.    The Regulatory part of the Fed is just a bunch of bureaucrats attempting to make the bank's cubical drones (like me) follow the rules written by other bureaucrats.   If it wasn't for the Fed (and OCC) auditors half (or more) of the people "working" at the TBTF banks wouldn't have jobs.  

passenger_pidgin's picture

How does Germany complete the switch to the other axis with all of the US bases over there? Please help me visualize this, folks.

Perfecthedge's picture

Asking Putin to send military aid? Oh no...

NoTTD's picture

US out of Germany, Europe, NATO.

Day_Of_The_Tentacle's picture

Well, it is said that the up-scaling of Homeland Security and the militarization of the US police force has been done primarily to be able to handle returning veterans from abroad. That suggests that there is an actual expectation that they will be called home at some point. It also suggests that they may be angry, when they do come home - hence the perceived need for counter force capability.

Since the idea that home-coming Veterans and Patriots would be working actively against some government agencies is strange to say the least under the current official information paradigm, I am wondering, if the trigger could be some kind of broad msm revelation that their work and sacrifices have been made on an entirely false foundation and that the same false foundation is severe enough for other countries to diplomatically expel US military personnel and presence from said countries, despite old treaties etc.

Something like 9/11 or maybe an even worse event, that has not yet occured. Maybe they will be called home simply because there is no more money left in the public coffers to sustain 8-hundred something bases abroad. Just pondering. 

AnAnonymous's picture

Well, it is said that the up-scaling of Homeland Security and the militarization of the US police force has been done primarily to be able to handle returning veterans from abroad.

Since when? The rise for demand on security comes from the failure in maintaining the expansion ponzi scheme 'american' economics are based on.

When the expansion scheme was rolling on, the urge to securize was lower because it was offset by the constant inputs to the economy.

As those inputs are destined to go down, the urge to securize everything that was looted previously surges.

When a thief keeps thieving and that every new day brings some new loot, securizing the loot of the previous day is not an emergency, any loss will be compensated on the next day.
When the thief witnesses that every next day, the loot get lower, suddenly, it means that any loss in the past loot will not be that easily compensated. Therefore a higher needs for security.

Veterans are not involved here. Veterans are 'american' and they wont go against 'americanism'.

Day_Of_The_Tentacle's picture

I don't remember where I read that the purpose of the up-scaling was to control veterans. When? Since the expansion began, I suppose. There are many mentions of purchases of military style equipment for Homeland Security and the Police, but I don't remember exactly when this tendency began. It is ongoing. The rest of what you write I largely agree with. It is certainly a part of the picture of a declining system. As for the last bit that veterans are not involved. I just say "yet".  

Utah_Get_Me_2's picture

Just search 'DHS' 'Returning Veterans' 'militarized police'. You'll find out.

Here's one link for you.


TeethVillage88s's picture

Democrats (or most Congress) were afraid of Returning Vietnam Veterans in the 1970s. So they shut down the best Training Centers for things like Jungle Warfare and counter insurgency. But in those days the Democrats didn't have an unlimited federal budget to work with and didn't have a big Federal Police Force like DHS.

Guys like Kissinger & Zbignew Zbrinski probably though of Trigger Pullers as peasants anyway.

Congress doesn't have a use for Soldiers if it doesn't have a war or if they retire/disability (hence the scandalous treatment of VA Medical Centers)

But what else could DHS Up-Scaling be for:

1) Property Seizure (Debt Reasons)
2) Vagrants (Unemployment Reasons)
3) Disease Quarantine
4) State Efforts to Secede (Federal Politics)
5) Currency Crash OR Massive Inflation
6) Foreign Ownership of US Businesses, Apartments, Houses, Farmland, Capital, Beach Fronts, Nicer Gated Communities
7) Bail-ins
8) Massive Economic Shock and New Imposed rules like in 1933

"Faced with a severe crisis, governments can slap on wage and price controls, freeze currency exchanges, impose rationing, raise trade barriers, default on their debts, nationalize whole industries, issue new currencies, allocate goods and services by fiat, and impose martial law to make sure the new economic rules are followed to the letter, if necessary, at gunpoint. Again, these aren’t theoretical possibilities; every one of them has actually been used by more than one government faced by a major economic crisis in the last century and a half."


lasvegaspersona's picture


the currency becomes rapdily worthless and poverty engulfs the USA and other countries as well and the entire world finally has to cooperate AND... the biggie...the USA can no  longer be the boss due to the currency collapse...could happen.

Blackfox's picture

Hey is that Radio Birdman as your avatar?

Saw them live in Byron Bay years ago :)

passenger_pidgin's picture

sho nuff is.  IMO, they are all that rock n' roll was supposed to be - and a little bit more. :) Have never seen them live.  Cheers to you, blackfox!

effendi's picture

The US bases in Germany are not that powerful. The Germans have more troops (and police) than there are yanks on the bases. Cut the power, turn off the water and point the way to the border (with police escort)

If the Philipines can kick the yanks out of Subic Bay etc  then the Germans can do the same (or does America want war with every other nation on earth?)

Bastiat's picture

Gee, I wonder if any US TBTF banks have exposure to DB?

TruthTalker's picture

I highly doubt it - they are so above board and well managed

MsCreant's picture

I made this point in a comment above, we'd die in the unwind, it's a stupid bluff.

espirit's picture

So true.

Moar smoke and mirrors.

Bernoulli's picture

No, no. Me thinks DB and Eurozone banks are pretty well isolated.

Nothing to fear for Team America.

khakuda's picture

How's that Macroprudential oversight working for ya Janet?

trader1's picture

if the BuBa/ECB/EU wants to bailout DB, it will.

if not, then that will mean the current financial system owners/planners/operators will be looking for new opportunities.  

trader1's picture

fresh off the press.


googlers will soon learn how many friends they can count on in the us adminstration: 


The European Commission is likely to revise some terms of a settlement announced in February, aimed at dealing with concerns that the company abuses its dominance of online searches in Europe, a person with knowledge of the situation said Tuesday. That means a final decision on the case may be taken by the successor to the EU's current competition chief, who is expected to leave office in November, the person said.

The antitrust probes are only one element of a number of challenges faced by the U.S. search giant in Europe, where it has faced allegations over issues ranging from corporate taxes to copyright issues to data privacy.


shanearthur's picture

This reminds me of playing the board game Risk as a young adult. At the end after everyone has amassed their assets, they begin to fight and the whole thing unravels quite quickly.

TruthTalker's picture

in other words - Germany is turning East and joining Russia and China's BRICS