Finance leaders issue
fresh warnings amid Deutsche worries, pound rout
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[October 08, 2016]
By Jan Strupczewski and David Lawder
WASHINGTON (Reuters) - World finance
leaders issued fresh warnings about economic stability risks on Friday
amid worries about a massive U.S. fine for Deutsche Bank destabilizing
Germany's largest bank, a sharp fall in the British pound and weak
Jeroen Dijsselbloem, the chairman of euro zone finance ministers, said
that the U.S. Department of Justice's demand that Deutsche Bank pay $14
billion for its role in the sub-prime mortgage crisis is too big and
will undermine financial stability.
"Let's hope it is an opening bid," Dijsselbloem told Reuters in an
interview on the sidelines of the International Monetary Fund and World
Bank annual meetings in Washington. "These kinds of fines are completely
oversized, and they are damaging to financial stability."
Deutsche Bank has been struggling to overhaul its business model that is
built around trading activities that have become much less lucrative
under new regulation enacted since the 2008-2009 financial crisis.
"Here is a financial institution which needs to be restructured and
strengthened and needs to bring in new capital and we cannot then have
an even bigger amount of capital being pulled out by the American
authorities. That is really counterproductive to put it mildly,"
U.S. Treasury Secretary Jack Lew declined to comment specifically on
Deutsche Bank, but said that Europe needed to do more to ensure that its
banks were adequately capitalized and ready to deal with future risks to
"We’ve also been clear that Europe has not done as much as the United
States and this is a case where sometimes doing more is better," Lew
told a news conference, referring to new capital requirements and
regulations imposed on U.S. banks after the last crisis.
German Finance Minister Wolfgang Schaeuble earlier said that a new
financial crisis could not be ruled out and that the IMF is backing up
his longstanding warnings about the risks to the banking system from
"ultra-loose" monetary policy.
Speaking at a news conference to discuss Germany's leadership of the G20
major economy meetings in 2017, Schaeuble declined to answer direct
questions about Deutsche Bank's health.
But he repeated his sharp criticism of "ultra-loose monetary policy,"
which includes the negative interest rates and other unconventional
strategies of the European Central Bank aimed at jolting Europe out of
extremely weak growth.
"The danger of a new crisis has not completely vanished," Schaeuble
[to top of second column]
Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem
reacts during a European Union finance ministers meeting in
Brussels, Belgium, July 12, 2016. REUTERS/Francois Lenoir
IMF officials have said this week that Deutsch Bank needs to reassess its
business model to maintain profits and capital in what is expected to be a long
era of low rates that will pressure earnings.
Deutsche shares rose on Friday after Reuters reported that Qatari investors who
own a nearly 10 percent stake in the bank do not plan to sell their shares.
POUND'S "FLASH CRASH"
The British pound lost more than 10 percent of its value early on Friday in a
massive "flash crash" that underscored concerns about Britain's economic
stability as it starts to negotiate an exit from the European Union
Dijsselbloem said the sharp drop reflected investor disappointment in what he
views as the British government's moves toward a "hard Brexit" - a divorce that
would leave Britain without the full trade and economic benefits of full
participation in the market of nearly 500 million people.
"If the message remains the 'hard Brexit,' if that is really the way the British
government wants to proceed, you can't be surprised that the pound will go down.
I think that is what is happening," Dijsselbloem told Reuters.
But British Finance Minister Philip Hammond told reporters that no decisions had
been taken on Britain's negotiating stance after Prime Minister Theresa May said
the two-year negotiating process would start next March.
"Everything is negotiable," Hammond said, including terms of a Britain-EU
Hammond said the pound's drop earlier in the week was due to May's confirmation
that Britain would definitely leave the EU and was "part of a pattern of
turbulence that I would expect to see."
(Reporting by Jan Strupczewski, David Lawder and David Chance; Writing by David
Lawder; Editing by Andrea Ricci)
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