EUROPEAN CENTRAL BANK TO DEUTSCHEBANK: SIMULATE A CRISISApril 20, 2018
With all the Syria and Skripal goings-on, you may have missed this one, and it's a biggie. This article was brought to my attention by Mr. L.G.R., and it's one of those that invites "careful reading between the lines." The story? The European Central Bank (based in Frankfurt), has ordered Deutsche Bank (also based in Frankfurt), to prepare a "crisis scenario":
Now, I have no doubt that banks, corporations, government finance ministries and regulatory agencies probably run such games and scenarios all the time. It's the financial equivalent of a wargame, and this, indeed, is what we're being reassured of here, toward the end of the article:
To be sure, in order to avoid a panic that the ECB is preparing for the worst and simulating a full-blown Deutsche Bank bankruptcy, SZ adds that the exercise is not about simulating an event of bankruptcy, "which would be many times more expensive and difficult." In response to the article, the ECB said that it generally gives banks many tasks, without elaborating on the "crisis scenario" it has requested.
Meanwhile, Deutsche Bank said it is routinely tasked by regulators to determine "the consequences of orderly settlement of positions in its trading books." Perhaps, but never until now was Europe's biggest bank asked to quantify how the abrupt end of its banking business, with its associated €48.3 trillion in gross notional derivatives, would affect both the bank itself, and would percolate across markets. (Emphasis added)
All's well; it's perfectly routine, nothing to see here, move along.
Except I suspect, and I suspect the reader suspects, there is much more going on here than standard "financial scenario gaming." For one thing, there's nothing normal about Deutsche Bank's position if one considers those figures alone: forty-eight point three trillion euros' worth of derivatives. That's 48,300,000,000,000.00 folks. Now, just by way of comparison, here's the figures for the USA's gross domestic product:
According to the chart, the USA's gross domestic product for 2016 was 18624.48 billion dollars in 2016, or 18.624 trillion dollars. That means Deutsche Bank is carrying an amount of derivatives on its books that is approximately two and a half times larger than the gross domestic product of the USA. And that's just Deutsche Bank. Don't forget that at the time of the 2008 "bailouts", to total derivatives estimated to be on the books world wide was in the quadrillions of dollars, that is, several times the entire gross domestic product of the planet. The problem, in other words, is not confined to Deutsche Bank. In other words, as Zero Hedge puts it, " few if any of the outstanding concerns involving Europe's banking behemoth - Deutsche Bank, which has gone thorugh - with €48 trillion in net notional derivatives has been resolved...".
Which brings me to my high octane speculation of the day. Indeed, in true goat fashion, I'm going to climb the tree and walk way out to the end of the twig: for I strongly suspect that the "scenario" being gamed with Deutsche Bank is the tip of the iceberg, and that this is being run across the board with any major banks with large amounts of derivatives on their books.
And what do you want to bet that, lurking behind these scenarios, is a "rape of Russia" model, but this time, applied not to Russia, but the West itself?
See you on the flip side...