Deutsche Bank Must Increase Cash Buffers For High-Risk Transactions!

The European Central Bank (ECB) has ordered Deutsche Bank to back its business with more equity. As a result, the individual capital surcharge for the bank will rise by 0.2 percentage points to 2.7 percentage points. Under the ECB decision, Deutsche Bank must report a Common Equity Tier 1 ratio of at least 10.55% at the group level, compared with 10.43% as of September 2022.

The central bank supervises the largest banks in the monetary union. The supervisors set individual minimum and general capital requirements for individual institutions. At Deutsche Bank, this has a unique background. “The increase is due to the ECB’s newly introduced separate assessment of risks from so-called leveraged finance transactions,” Deutsche Bank’s statement says. These are considered comparatively risky.

That the ECB is taking a closer look at this sub-sector has already become apparent in recent weeks. According to reports, the supervisors had asked institutions to reduce their exposure in this area and threatened them with higher capital requirements. For banks, higher financial buffers are inconvenient. After all, the more precious equity they have to set aside, the lower returns they can generate.

Deutsche Bank is meeting the higher requirement without having to stretch. Its complex core capital ratio stood at 13.33% as of the end of September 2022. In addition to Deutsche Bank, the ECB imposed a more significant financial buffer on the central French bank BNP Paribas. The hardcore capital requirement climbed from 9.27% to 9.56%.


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