Livewire Equities

Banks fail because they are 1) illiquid, 2) insolvent, or 3) both. Deutsche Bank does not have a liquidity problem. They hold EUR 200 billion of highly liquid assets (12.5% of the balance sheet) which are enough to withstand a serious bank run. But ultimately it doesn’t matter, because the European Central Bank (ECB) can and will provide unlimited liquidity support to the bank, if needed. The solvency question is more nuanced. Normally banks become insolvent because they can’t recover money from borrowers or counterparties; they don’t have as many assets as they thought. But the value of Deutsche Bank’s assets isn’t being questioned. Rather, it’s the value of their liabilities that has the market in a spin. In this article, Nik Dvornak, Co-Manager of Platinum European Fund, shares his view on the Deutsche Bank saga. (Source: Platinum Asset Management) (VIEW LINK)


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