Fresh after Portugal’s Espirito Santo filed for creditor protection on Friday night the US Fed has raised serious concerns about Germany’s largest bank, Deutsche Bank’s US operations, stating they represent a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports,". Zero Hedge has for some time now been reporting the global danger represented by Deutsche Banks eye watering EUR55 trillion derivatives position as depicted in the graph below. For further context that is about the same as global GDP.
Whilst Credit Default Swaps (CDS’s) played a big role in the GFC, many believe we just scraped through because somehow the full extent of these and other toxic derivatives in the global system didn’t play out to the extent they threatened. Since the GFC the world has taken on much more debt, entwined the GFC saviour emerging economies and looks more prone to the next “Lehman” event bringing it all down harder than last time. Whilst the relatively small Espirito Santo case seems to have been absorbed, something like Deutsche Bank could make Lehman look relatively insignificant.
