How Being Too Big to Fail Created a Banking Menace

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Menace II Society?
Menace II Society? Photo: Carlos Alvarez/Getty Images

Deutsche Bank won its second dubious distinction of the day when former IMF chief economist Simon Johnson named Deutsche Bank CEO Josef Ackermann "one of the most dangerous bankers in the world." The first dishonor came when a Senate investigation singled out Deutsche Bank as an investment firm that sold mortgage-backed CDOs to investors hoping their value would drop. What makes Ackermann so dangerous? His famed target of 25 percent pretax return on equity.

He said such returns were only possible because Ackermann knows that Deutsche Bank is too big to fail and that it would be "rescued by taxpayers" if it was faced with bankruptcy.

To stop "classic recipe for a new crisis," Johnson suggests that banks need to hold capital reserves equal to 20 and 45 percent of total assets. Currently, said Johnson, Deutsche Bank has a capital ratio of just 4 percent.


Deutsche Bank CEO Ackermann Slammed: 'One of the Most Dangerous Bankers in the World'
[Der Spiegel via Dealbreaker]