August 1, 2014 By Joseph P. Farrell

Now this one is rich folks, and comes to us from Zero Hedge courtesy of many readers here who shared it.

The New York Federal Reserve, that bastion of transparency and truthfulness, is accusing the huge German mega-bank, Deutsche Bank, of over exposure to derivatives. Here's the Zero Hedge article:

NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"

Ok, so says the NY Fed to Deutsche Bank: "Whoa! You're way over-exposed to derivatives and at significant risk!"

We'll get back to what would be a fun Deutsche Bank response to this statement in a moment.

But consider some interesting facts from the article. Note that Germany's Gross Domestic product is approximately 2,740,000,000,000 euros, almost three trillion euros, while the whole Eurozone's GDP is only 9,600,000,000,000. In other words, Germany accounts for approximately 28.5 % of the Eurozone's GDP. If you've been wondering why Germany has such clout in the European, or for that matter, the world economy and geopolitics, that's why; it remains the locomotive of Europe's economy, after two World Wars and, some would argue, desperate attempts of certain people in certain Cities, to ruin the country once and for all.

But now note that Deutsche Bank's exposure to derivatives is around 54.7 trillion euros... that's almost twenty times the entire German GDP, and it's approximately 5.5 times the entire Eurozone's GDP.

Now in that context, consider this citation from The Wall Street Journal and Zero Hedge's analysis:

"In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."


"The criticism from the New York Fed represents a sharp rebuke to one of the world's biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations.

"The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made "no progress" at fixing previously identified problems. It said examiners found "material errors and poor data integrity" in its U.S. entities' public filings, which are used by regulators, economists and investors to evaluate its operations.

"The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.

"Deutsche Bank's external auditor, KPMG LLP, also identified "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013, according to a Deutsche Bank email reviewed by the Journal."

"Oh wait, so those €55 trillion in derivatives are actually completely fabricated? Well if that doesn't send the S&P 500 limit up nothing will.

"DB's response is the generic one already attempted by that other permacriminal bank, Barclays, which hired a few hundred compliance people after it was revealed that the British firm was manipulating and rigging pretty much every product and market it was involved in.

"We have been working diligently to further strengthen our systems and controls and are committed to being best in class," a Deutsche Bank spokesman said Tuesday. As part of this, he said, the bank is spending €1 billion globally and appointing 1,300 people, including about 500 compliance, risk and technology employees in the U.S. Mr. Muccia declined to comment.

"Sadly for now what this latest Pandora's box means is that confidence in Europe's insolvent banks just crashed with a bang once again, not that it would be reflected in the stock's rigged price of course: rigged most likely by Deutsche Bank among other of course."

So the bottom line here is this: Germany's largest bank is over-exposed to five and half times more derivatives than the entire Eurozone GDP, but Deutsche Bank might equally respond with some form of the following question to the NY Fed:

"OK. We're over-exposed. So, where do we rank in terms of over-exposure compared to, say, Barclay's, Westminster, BNP Paribas, Citibank, JP Morgan?"

In other words, just exactly where are all those credit default swaps and derivatives currently sloshing around?

And they might want to make one more statement, one calling into question just how sound the whole system is:

"OK, we're over-exposed. We've got bad books and bad credit. Just take it out in that gold that you won't repatriate."

In other words, look at the pot calling the kettle black.

Maybe, just maybe, what the financial system needs is a "Philippe le Bel" moment.

See you on the flip side...

(My Thanks to Mr. G.B. for his email pointing these things out).