A Bank with $49 Trillion in Exposure to Derivatives Is Melting down Right in Front of Our Eyes

The comments below are an edited and abridged synopsis of an article by Michael Snyder

Are we on the verge of the next Lehman Brothers moment? Deutsche Bank (DB) is the most important bank in Europe. It has $49 trillion in exposure to derivatives, and most of the largest too-big-to-fail banks in the US have deep financial connections to the bank. In other words, the global financial system cannot afford for DB to fail, and right now it is literally melting down in front of our eyes.

A Bank with $49 Trillion in Exposure to Derivatives Is Melting down Right in Front of Our Eyes | BullionBuzz
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Even though it has been hit by scandal after scandal, somehow DB was able to survive until now. But many believe that the end is near. On July 7, it laid off 18,000 employees and announced that it would be exiting its global equities trading business.

These moves may delay DB’s inexorable march into oblivion, but not by much. And as it collapses, it could take others down with it.

The actual credit risk to DB is lower than the notional value of its derivatives contracts, but it is still an obscene amount of exposure. This is especially true when you consider the state of DB’s balance sheet. As of the end of last year, it had total assets of $1.541 trillion and total liabilities of $1.469 trillion.

In other words, there wasn’t much equity at the end of December, and things have deteriorated since then. In fact, it is reported that a billion dollars a day is being pulled out of DB at this point.

The failure of DB could quickly become a major crisis for the entire global financial system. In particular, some of the largest too-big-to-fail banks in the US are heavily connected financially to it. 

The global derivatives market played a starring role in the last financial crisis, and it will in the next one, too. The fundamental structural problems that were exposed during 2008/2009 were never fixed. Many would argue that the global financial system is even more vulnerable today than it was during that time.

It appears that the next Lehman Brothers moment may be playing out right in front of our eyes. Now more than ever, keep a close eye on DB, because it appears that it could be the first big domino to fall.

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