WASHINGTON (Reuters) - The fine proposed by the United States for Deutsche Bank is too big and undermines financial stability by pulling out capital from an institution that is trying to recapitalize and restructure, the chairman of euro zone finance ministers said.
Jeroen Dijsselbloem said on Friday that the bank, one of Europe’s largest, was not too big to fail, but dismissed any possibility that it would fail noting it had large liquidity buffers and a high solvency ratio.
“The whole concept of too big to fail is wrong, we need to make sure they don’t fail. This is about making sure that every bank has enough capital to be bailed in, in case there are losses to be carried. What the stress tests and supervisors tell us is that the bank is sufficiently capitalized,” he said.
The U.S. wants to fine Deutsche $14 billion for its role in the sub-prime mortgage crisis.
“Let’s hope it is an opening bid,” Dijsselbloem told Reuters in an interview. “These kinds of fines are completely oversized, they are damaging to financial stability.”
“Here is a financial institution which needs to be restructured and strengthened and needs to bring in new capital and we cannot then have an even bigger amount of capital being pulled out by the American authorities. That is really counterproductive to put it mildly,” he said.
Deutsche Bank has been struggling to overhaul its business model that is built around trading activities that have become much less lucrative under new regulation brought in since the 2008 financial crisis.
While Deutsche Bank is now much smaller than Wall Street rivals like JPMorgan and Goldman Sachs, it has significant trading relationships with all of the world’s largest finance houses through its 42 trillion euros worth of outstanding derivative positions.
“It still has some issues that it needs to sort out, but I think it can sort them out,” Dijsselbloem said. “They need to continue the process of restructuring, recapitalizing and to redesign their business model.”
“The balance sheet is complex, the structure of the bank is complex, they need to reduce complexity, bring in new capital and find a new strong business model, and that is going on in a lot of banks in Europe,” he said.
A report by the International Monetary Fund this year identified Deutsche Bank as a bigger potential risk to the wider financial system than any other global bank.
Reporting By Jan Strupczewski; Editing by Andrea Ricci