Fresh worries about Europe’s banking sector have caused investors to feel extreme anxiety about the global economy. In what could be a repeat of the disastrous failure of American investment bank Lehman Brothers in 2008, there are worries that Deutsche Bank, Germany’s largest bank, could also possibly fail if its customers and businesses panic and cause a run on the bank.
Deutsche Bank has $2.2 trillion in assets, but it also has $45+ trillion worth of derivative exposures on its balance sheets. The Obama administration’s Department of Justice recently announced a fine for Deutsche Bank of $14 billion related to a settlement from the bank’s actions prior to the 2008 recession.
This amount was far more than the Deutsche Bank had budgeted for the penalty, causing worries that the institution might have to be rescued. The CEO of Deutsche Bank, John Cryan, has been attempting to renegotiate the settlement with the U.S. government, but so far, those negotiations have gone nowhere.
In the meantime, the bank’s stock has fallen by more than half in the past year and by 25 percent in just the last few weeks alone. Analysts agree that if the stock value drops much further, it becomes more likely that there could be a run on the bank.
This, in turn, would have a domino effect in Europe, in the United States and globally, as Deutsche Bank is five times the size that Lehman Brothers was in the late 2000s. The current situation is fairly precarious, and central banks and/or governments may have to take quick action to prevent a repeat of the 2008 crisis.
