Deutsche Bank and Commerzbank are presently discussing merger talks. The fact
that these meetings are occurring, is a signal that Germany's banking troubles
are indeed accelerating.
They are desperately seeking ways in order to cut costs and improve profitability.
These plans include restructuring and job cuts using most highly unconventional
measures. Last June 2016, Reuters cited anonymous sources as saying that Commerzbank
was exploring the option of hoarding billions of euros, in vaults, as a way
of avoiding paying a penalty to the European Central Bank which is due to negative
interest rates.
Their main problems are derived mostly from both low and negative interest
rates. These lenders are used to depending on interest rate margins for income
while offering some services to depositors at either low or no cost. Low interest
rates have significantly eroded these banks' abilities to make money. It has
become difficult for German banks to give incentives to their customers so
as to keep their money in their financial institutions. These inefficiencies
and the intense competition within the German banking sector have already led
to serious financial difficulties. If one combines these factors with the new
challenge of declining interest rates, what possible positive impact can they
expect to incur?
Interestingly, rates are not just low within the context of American history
but they also happen to be at their lowest levels ever in over 5,000 years
of civilization.
5,000 Years Of Interest Rates – Rates Lower Than 1930's Depression Era
Deutsche Bank is not merely Germany's biggest bank but the political role
that it plays in Germany is unique when compared to other countries. Deutsche
Bank's importance to Germany is many times greater than that of an investment
bank like Lehman Brothers was to the U.S., in 2008. Deutsche Bank is technically
a private bank, however, it is informally tied to the government and formally
tied to most major German corporations. The banks' fate will have an impact
on all of Germany.
The Italian banking crisis is not only Italy's problem!
Italy's non-performing loan issues have now become common knowledge. Who will
be forced into dealing with the repercussions of settling Italy's impaired
debt? That is a political question, and the answer depends, in large measure,
on who holds Italian bank debt.
The U.S banks are not shielded from these European Continental banking problems.
There is a substantial amount of uncertainty and risk.
The consequences of these failures pyramid the crisis due to the European
Unions' regulations. The European Central Bank (ECB) and the Central Banks
of member countries cannot bail out failing banks by recapitalizing them.
The bail-in strategy is, in theory, a mechanism for ensuring fair competition
and stability within the financial sector, across the Eurozone.
The bail-in process can potentially apply to any liabilities of the institution
that is not backed by assets or collateral. The first 100,000 euros ($111,000),
in deposits, are protected in the sense that they cannot be seized, whereas,
any money above that amount can be.
Germany insisted that the bail-in process should prevail.
The Bank for International Settlements stated that German banks are the second
most exposed to Italy, after France, with a total exposure of $92.7 billion.
Demand for gold has increased!
Italy's ongoing banking crisis is presenting yet another threat to the stability
of the ECB.
Commerzbank's financial statements revealed that their Italian sovereign debt
exposure was 10.8 billion euros ($12.1 billion).
Deutsche Bank's net credit risk exposure to Italy is 13.3 billion euros as
of the end of December 2015. Its' gross position in Italy is 35.4 billion euros.
Deutsche Bank is sitting on $41.9 trillion worth of derivatives.
The consequences of large banks failures are significant
Gold Is The Only 'Safe Haven' Left in the World
Gold has remained as a form of currency for many centuries. Whenever countries
followed a strict gold standard and used it as their currency, those economies
were very stable. But, governments have always surpassed their means, with
their costly spending, and have to leave their gold standard so as to fund
their inefficiencies. Currently, gold is now beginning its' multi-year “BULL
MARKET”. Gold is the only 'asset class' which will maintain its' 'store of
value' during this impending crisis which is on the near horizon. The 'Gold
mania' is about to be 'unleashed'. While global Central Banks are now implementing
'negative interest rates', this is the perfect scenario for gold to surge much
higher.
Gold does have a historical store of value characteristics. It is held by
Central Banks and institutions as a reserve. They do not want to sell it; on
the contrary, many of them want to buy still more and accumulate it. Therefore,
gold's characteristic role, in regards to sovereign reserves, is still intact
even amid the fascinating evolution of Central Banking and institutional finance
that we are witness to, today.