As banks floundered in March, Deutsche Bank sped into big deals to give its funds a temporary boost, using a method that raised concerns from European regulators, according to two sources with knowledge of the matter. .
Deutsche Bank has swapped billions of cash worth of securities for government bonds and cash, sources told Reuters, who calculate the liquidity coverage ratio (LCR). It is about the specific level of the bank’s access to cash for cash flows, such as withdrawals of deposits.
Although this is a legitimate banking practice, this raises Deutsche’s concern about disruption in general. A huge pile of cash investors and customers after Credit Suisse confirmed and several US banks suffered the deposit of refugees.
The activities have drawn the attention of European Central Bank (ECB) officials, who have questioned Germany’s largest bank about it during an exchange exercise, sources said.
Even without these deals, Deutsche Bank would far exceed the regulatory requirement of 100% LCR and its target, the sources said, adding that its liquidity is not a concern.
It matters to the ECB how much liquidity the bank has at the moment, and how much it plans to have in the following months.
The point is that liquidity can evaporate if short-term trades are not renewed, thus clouding the long-term view.
“Things can change very quickly, but as a manager I am concerned that they are going to do this at the end of the term, just to make them look more interesting, and I would like to look,” said Thorsten Beck, director of. the Florence School of Banking and Finance and co-chair of the Scientific Committee of the Council of Europe’s Systemic Risk Board.
Deutsche Bank’s use of these operations to improve its liquidity position at the height of the recent banking crisis has not been previously reported and discussions with regulators are confidential.
The practice is not unusual among large banks, but the stress test by the ECB in 2019 has been demonstrated as a technique to make the bank appear more robust.
Deutsche Bank saw its LCR operations increase in March, helping CEO Christian Sewing to praise the bank’s “unbeatable” and “solid fundamentals” from analysts when it presented its first-quarter figures in April.
Deutsche Bank “is managing a conservative liquidity profile across several liquidity parameters,” a Reuters spokesman said. Its liquidity level reflects “prudent management in an uncertain market environment” and had risen at the end of March “largely due to seasonal movements”, they added. An ECB spokesman declined to comment.