Systemic Risk in European Banks
Commentary
Negative interest rates and quantitative easing have wrecked the economic system. Negative interest rates destroy the profitable portion of a bank’s asset base, and no amount of cost-cutting or efficiency initiatives can compensate for this loss. Furthermore, persistent quantitative easing has transformed the investment side of the balance sheet into a ticking bomb.
Deutsche Bank is the latest to make headlines after Credit Suisse. Nonetheless, everyone was aware that Credit Suisse faced enormous obstacles and a lack of profitability. On the other hand, Deutsche Bank was recovering from years of losses. Since 2019, Deutsche Bank has launched a solid rebalancing plan, with a goal of increasing return on tangible assets to 8 percent, a massive cost-cutting initiative, and a shift from investment banking to its core lending activities. After years of losses, the core capital ratio grew and profits began to emerge, indicating the apparent success of the plan….