The sources said that “Deutsche Bank” replaced securities worth billions of euros with cash and government bonds, directing them to the “liquidity coverage ratio” element, which is the element by which the bank can determine the extent of the bank’s access to available cash to cover financial outflows such as depositor withdrawals.
Although the move is considered legitimate banking practice, it has highlighted concerns about whether Deutsche Bank can tolerate disruption beyond what already exists.
But the presence of ample cash liquidity reassured investors and customers, after Credit Suisse and a number of US banks suffered from deposit withdrawals.
The sources said the deals caught the attention of ECB watchers, who questioned Germany’s biggest bank about them during routine disclosures.
Even without the agreements, the sources said, Deutsche Bank would have far exceeded regulatory liquidity coverage ratio requirements, and the bank’s liquidity was not an issue.
The important thing for the ECB, they said, was to determine how much liquidity the bank had at the time, as well as what it expected to have in the following months.
The problem with this method used by the bank, however, is that liquidity can evaporate if short-term transactions are not renewed, which affects the long-term outlook.
“These deals can happen very quickly, but as a supervisor I would be concerned if they made these deals at the end of the quarter to spruce up the financials, and I would look into that,” said Thorsten Beck, co-chair of the committee. European Scientific Advisory Board on Systemic Risk.
Deutsche Bank has never been reported to have used such transactions to improve its liquidity position during the height of the recent banking turmoil, and the bank’s discussions with the regulator are confidential.
This practice is not unusual among large banks, but the European Central Bank considered it during its 2019 banking stress test as a way to make the bank appear stronger.
The deals helped Deutsche Bank show a strong liquidity coverage ratio in March, helping chief executive Christian Swing praise the bank’s ‘resilience’ and show the bank’s financial health is solid to analysts for its first quarter results.
Commenting on the report, a Deutsche Bank spokesperson said: “The bank is actively managing its liquidity profile conservatively through a number of liquidity measures. He added that the level of liquidity reflects “cautious performance in an uncertain market environment” and that the growth that emerged at the end of March was mainly driven by seasonal movements.
Read the Latest World News Today on The Eastern Herald.
