October 03, 2016
Sir, I refer to David Marsh’s narrative on Deutsche Bank’s troubles “German banking woes reflect shattered ambition and Schadenfreude” October 3.
There Marsh writes: “Throwing off its traditional conservatism, Deutsche Bank has moved into a realm of risk-taking where recklessness has ridden roughshod over rectitude”
Not exactly so. Deutsche Bank, like many, really like most banks, was moved into the=at artificial world created by regulators of avoiding risk-taking, since then it needed less capital, since then it thought it could earn the higher expected risk adjusted returns on equity that the market had been made to believe it should expect.
Before there is full understanding of the distortions that the credit risk weighted capital requirements for banks cause, there is little chance of finding sustainable solutions for the banks (and for the real economy).
Sir, there are many Deutsche Banks in waiting, just that they don’t know it, they just keep dancing to that lousy music the Basel Committee and the Financial Stability Board plays to them. As I have written to you many times before, banks must begin to maximize their returns on equity with banking, not with bank equity minimization.