Why two of Europe’s biggest banks can’t pass the stress test
The vast majority of big banks seem to be getting a handle on the costly, labor-intensive and time-consuming stress-testing process. Twenty-nine institutions have cleared the bar in each of the last two years.
But for a pair of large banking companies, Santander Holdings USA and Deutsche Bank Trust Corp., the stress tests have so far proven to be an unconquerable challenge.
The Federal Reserve Board announced Wednesday that the two were alone in failing this year’s Comprehensive Capital Analysis and Review. The results marked the second consecutive failed stress test for the unit of Germany-based Deutsche Bank, and the third straight year that Santander’s U.S. arm has flunked.
Both companies met the minimum regulatory capital ratios that are required by the Fed, but they fell short on qualitative grounds, just as they did in 2015. The Deutsche and Santander units were both called out for what the Fed identified as deficiencies in risk-management processes and stress-testing processes, though the Fed also said that both firms have made progress.
Both of the struggling banks are foreign-owned, but observers were split on whether that factor is contributing to their poor results.
Oliver Ireland, a partner at Morrison Foerster, said that they may be the result of different priorities at the parent company level.
“The U.S. regulators may have the full attention of the U.S. management, but they may not have the same attention of the foreign management,” he said.
But Will Newcomer, a vice president at Wolters Kluwer, expressed doubt that European ownership is a factor. “I can’t imagine a foreign parent being less interested,” he said.
Deutsche and Santander were quick to note that the Fed determined that they have adequate levels of capital. But they also acknowledged that they have work left to do.
“We appreciate the Federal Reserve’s recognition of our progress,” said Bill Woodley, deputy chief executive of Deutsche Bank Americas, in a press release, “and we will implement the lessons learned this year in order to strengthen our capital planning process for future CCAR submissions.”
Scott Powell, CEO of Santander Holdings USA, said in a press release: “We have made progress, but our internal capital planning, stress testing, internal controls, governance and oversight require further improvement to meet our regulators’ expectations.”
The key question now is what will be the consequences for repeated failures. Santander Holdings USA, a unit of Spain-based Banco Santander, is the first bank to fail CCAR three years in a row.
look at the one at the bottom..thats the new lehman brothers..bank on it..
“Deutsche and Santander were quick to note that the Fed determined that they have adequate levels of capital. But they also acknowledged that they have work left to do.”
the fed did eh?..lol?
“The results marked the second consecutive failed stress test for the unit of Germany-based Deutsche Bank, and the third straight year that Santander’s U.S. arm has flunked.”