Well-capitalized banks are supposed to have double-digit capital levels while making low risk investments. Deutsche Bank, on the other hand, has a capital level of less that 3% (just like Lehman), and an incredibly risky asset base that boasts notional derivatives exposure of more than $70 trillion, roughly the size of world GDP. Even the IMF has stated unequivocally that Deutsche Bank poses the greatest risk to global financial stability and the IMF would be right – except that most of the other banks major banks in the world are no better off – see chart below.
The comments above and below are excerpts from an article by Simon Black (SovereignMan.com which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
Deutsche Bank, currently one of the largest banks in the world, has seen a lot in its years [since being established in 1870]; multiple world wars, the devastation of Europe, hyperinflation in the Weimar Republic, Nazi Germany…but, as the world learned in 2008, when the 158-year old investment bank Lehman Brothers went bust, even giant, centuries-old financial institutions can collapse…
One of the major issues in the 2008 crisis was that banks were over-leveraged and had very thin levels of capital. In other words, the banks’ rainy-day reserve funds as a percentage of their overall balance sheets were extremely low, so even a small loss in their investment portfolios would cause financial Armageddon. That’s precisely what happened. Lehman Brothers famously had a capital ratio of less than 3% of its assets so, when the value of its assets fell by more than 3%, the bank was finished.
Well-capitalized banks are supposed to have double-digit capital levels while making low risk investments. Deutsche Bank, on the other hand, has a capital level of less that 3% (just like Lehman), and an incredibly risky asset base that boasts notional derivatives exposure of more than $70 trillion, roughly the size of world GDP. Even the IMF has stated unequivocally that Deutsche Bank poses the greatest risk to global financial stability and the IMF would be right – except for all the other banks.
- In Italy, nearly the entire Italian banking system is rapidly sliding into insolvency. Italian banks are sitting on over 360 billion euros in bad loans right now and are in desperate need of a massive bailout. IMF calculations show that Italian banks’ capital levels are among the lowest in the world, just ahead of Bangladesh, and this doesn’t even scratch the surface of problems in other banking jurisdictions.
- Spanish banks have been scrambling to raise billions in capital to cover persistent losses that still haven’t healed from the last crisis.
- In Greece, over 35% of all loans in the banking system are classified as “non-performing”. This is astounding. But what’s even more incredible is that the ratio of non-performing loans has actually been increasing for several years since the country’s supposed bailout.
- Banks in Cyprus and Portugal are hemorrhaging cash and reporting widespread losses.
Banks’ stock prices across the region have practically collapsed in recent weeks as investors have started to realize that Bancopalypse 2.0 may be upon us. (Oh, and lest anyone think that the United States is a banking safe haven, it’s worth noting that the non-performing commercial loan ratio in the US banking system has tripled in 18-months… but we’ll save that for another time.)
Here’s the bottom line: the banking crisis of 2008 never fully healed. It just got shuffled under the carpet while the public was fed a phony narrative that everything was fantastic…[which] turned out to be a gigantic farce; many of the world’s banking systems are just as risky as they were back in 2008.
Do yourself a favor: don’t keep 100% of your savings trapped in a risky banking system. What’s the point? They’re only paying you 0.1% anyhow. Why take on so much risk?
If you have savings of even more than $10,000 (and definitely if you’re in the six to seven figure range), move some funds to a stronger, better capitalized banking system abroad, and definitely consider owning precious metals, plus holding at least a month’s worth of expenses in physical cash in a safe at your home. Given how low interest rates are, you won’t be any worse off but should Bancopalypse 2.0 be upon us, cash and gold could end up being a phenomenal insurance policy.
Simon Black, Founder, SovereignMan.com
Disclosure: The above article has been edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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