ECB Tells Deutsche Bank To Simulate A "Crisis Scenario"

In a stark reminder that despite all the operational and management turmoil over the past three years, few if any of the outstanding concerns involving Europe's banking behemoth - Deutsche Bank, which has gone thorugh - with €48 trillion in net notional derivatives has been resolved...

... in its Monday edition, Suddeutsche Zeitung reports that the ECB has asked that Deutsche Bank simulate what a "crisis scenario" would look like, and what it would cost to complete a "resolution", i.e. wind-down, of its own investment banking division. 

While DB's calculations have reported been taking place for several months, SZ notes that this is the first time that the ECB supervisory authority has demanded such a measure from a major bank. The German publication also notes that the ECB will demand similar simulations of other banks.

According to the report, banking regulators want to know what the impact would be on the value of Deutshe Bank's capital market and derivatives business if, as a solvent bank, it had to simulate an abrupt end to new business.

One possible need for such a simulation may stem from the recent termination of CEO John Cryan, and his replacement with Christian Sewing, a lifelong retail banker, who some have speculated may seek to wind-down Deutsche Bank's i-Banking division.

To be sure, in order to avoid a panic that the ECB is preparing for the worst and simulating a full-blown Deutsche Bank bankruptcy, SZ adds that the exercise is not about simulating an event of bankruptcy, "which would be many times more expensive and difficult." In response to the article, the ECB said that it generally gives banks many tasks, without elaborating on the "crisis scenario" it has requested.

Meanwhile, Deutsche Bank said it is routinely tasked by regulators to determine "the consequences of orderly settlement of positions in its trading books." Perhaps, but never until now was Europe's biggest bank asked to quantify how the abrupt end of its banking business, with its associated €48.3 trillion in gross notional derivatives, would affect both the bank itself, and would percolate across markets.


eforce Bondosaurus Rex Sun, 04/15/2018 - 16:54 Permalink

"The bank can stay afloat with the first 4 derivatives intact, but not 5, as she goes down into the red, liquidation will spill over from one derivative to the next, back and back, theres no stopping it"

"But what about the QE?"

"The QE buys you time, but months only"

"No matter what we do, Deutsche Bank will founder".

In reply to by Bondosaurus Rex

any_mouse GreatUncle Sun, 04/15/2018 - 13:31 Permalink

Carrying "wounded" toxic troubled assets that appear to be unconcerned with their own injured state or the supposed ongoing tragedy around them.

"Don't look at my smartphone! Just keep moving!", Francis Ford Everyman.

Does the EU really want to ask this question? Of DB?

Pulling a bottom stick out of a pile of sticks over 60 trillion high?

[turns a bolt. then a clunk.] "uh oh". "Omen II", when the glyco-organo-phosphate tank blows.

In reply to by GreatUncle

grove300 SpanishGoop Sun, 04/15/2018 - 13:14 Permalink

If the Russians want a glass chin knock out punch with global implications.... It's DB  the zombie bank that will suck the blood out of the entire financial system.  It's not only the 48 trillion of derivatives it's the rehypothecation of stocks, bonds, treasuries, gold, contracts all on an international level.  Everything and everybody on the globe will be involved instantaneously. The US markets will be closed for the day by 12:45 PM the day this happens and only trade for 15 minutes as the circuits breakers snap 3 times with appropriate time outs. 

In reply to by SpanishGoop

ah-ooog-ah grove300 Sun, 04/15/2018 - 13:39 Permalink

Bishop here. I'm afraid l have some bad news. Well, that's a switch! It's very pretty, Bishop, but what are we looking for? That's it. Emergency venting. That's beautiful, man. That beats it all. How long till it blows? Four hours... ... with a blast radius of 30 kilometers, equal to about 40 megatons. - We got problems. - I don't fu.kin' believe this! Vasquez, close the shutters. Why can't we shut it down from here? The crash caused too much damage. An overload was inevitable at this point.

In reply to by grove300

zenon Sun, 04/15/2018 - 13:36 Permalink

I don’t recall the ECB asking other European (smaller) banks to draft their own crisis scenarios. The ECB would do its own stress test and that is that. In the douche bag too big to fail case they get to draft their own “scenario”. How touching this all is - if one could avoid       vomiting.

Ink Pusher Sun, 04/15/2018 - 13:44 Permalink


What a load of steaming horseshit.

The crisis is real,they are just calling it a simulation to avert panic and competition while they dump trillions is worthless debt on the markets at wholesale or even below auction prices.

bentaxle Sun, 04/15/2018 - 16:03 Permalink

Hold on ZH...first paragraph says $48Trillion NET notional.

Final para' says $48 trillion GROSS notional. Which is it? Because one IS serious, the other is a lot less serious.

Just asking.

Edit, sorry €!

flatbush71 Sun, 04/15/2018 - 21:47 Permalink

Look guys, its just numbers on pieces of paper or in this age ones and zeros in a frekin computer. Don't mean nothin in the real world.

Just remember its he who has the most fire power, will always get the gold.

Game over Vlad !