Posted by on October 11, 2016 3:56 pm
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Categories: Borrowing Costs Deutsche Bank Economy LIBOR Rating Agencies Transparency Volatility

As the powers-that-be play whack-a-mole with various systemic risk indicators, desperately tamping down contagion concerns, amid no progress in strengthening the world’s most systemically dangerous bank; we warned two weeks ago of yet another canary in the coalmine of Deutsche Bank’s demise (that no one was looking at). This week, that canary… died.

The last few weeks have seen Fed swap lines engaged and:

  • Deutsche Bank stock ‘managed’.
  • ECB Lending facilities ‘managed’.
  • EUR-USD basis swaps ‘managed’.

But, despite all of this ‘help’ Deutsche credit risk remains at or near record highs…

And as Deutsche Bank stocks began to squeeze higher, we tweeted…

And now sure enough, as Bloomberg reports, in the European money market, its funding costs are almost twice as much as those of its peers.

Moreover, one of the bodies responsible for collating money market rates thinks you shouldn’t know what individual banks are paying for their money — an unforgivable attitude, particularly in light of the lies many banks told (and have been fined for) about interest rates that affect about $350 trillion of securities around the world. 

Deutsche Bank says its short-term borrowing cost is -0.17 percent; the next highest rate among the 20 banks that contributed this week’s levels is -0.28 percent from Portuguese state-owned bank Caixa Geral de Depositos, while the consensus derived from the entire panel is -0.31 percent. Here’s a chart showing what various European banks say the borrowing cost known as Euribor is for three-month euros:

Simply put, as Bloomberg’s Mark Gilbert explains, technically, in this wacky world of negative euro interest rates, it’s hard to talk about “borrowing costs” as such. More precisely, the discount at which Deutsche Bank says it can raise funds has declined. But you get the picture: Even with rates below zero, everyone else can get funds cheaper than the Frankfurt-based firm can.

It’s hard to interpret Deutsche Bank saying money is more expensive for it than for its peers as anything other than a reflection of its perceived creditworthiness in the banking community, as opposed to the official assessment by the rating agencies.

What’s worse is that the administration said in March that it plans to draw a veil over what individual banks’ funding costs are:

LIBOR panel banks have expressed concern not only that commercially sensitive data would become public but also that day-on-day volatility in LIBOR rates could lead to false inferences about a bank’s financial stability and credit quality. To address this concern and to maintain transparency as far as possible, IBA will publish individual submissions after three months’ delay, as at present, but on a non-attributed basis.

So another canary may soon disappear… because what you can’t see, you can’t trade on. “You can’t handle the truth.”

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