Visualizing Deutsche Bank Systematic Risk

Posted by on February 4, 2017 12:59 am
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Earlier in the week my partner Matt Demeter took a position Deutsche Bank Demeter Research Daily Trade Update – Deutsche Bank

Arguably, Deutsche Bank is a massive financial time bomb ready to go off. This will become increasingly evident as the tide of illusionary stability and prosperity goes out over the next few years.

The chart above gives us a good overview of systematic risk Deutsche Bank brings and what that means for the rest of the players in our financial system.

Big banks are as connected and dangerous as they were before the 2008 crisis. The IMF reported that Deutsche Bank was “the most important net contributor to systemic risks.”

The threat of banks being so interconnected is that once they fail, or if they hit market turbulence, it can cause a contagion effect across the world. When one bank catches a cold, the next catches pneumonia.

According to the IMF report, “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”