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June 29, 2018updated 02 Jul 2018 5:28am

Deutsche Bank’s US division fails FED stress tests

Deutsche Bank USA (DB USA) has failed the Federal Reserve’s annual stress tests, which evaluates the capital planning practices of the major operating banks in the country.

The Federal Reserve Board unanimously objected to the bank’s capital plan. It expressed concern over the material weaknesses in the DB USA’s data capabilities and capital planning controls.

The board, however, approved the capital plans of other 34 firms.

It also found the bank’s approaches and assumptions which are used to predict revenues under stress are weak.

Now, DB USA needs to make appropriate measures associated with management and analysis of its counterparty exposures under stress.

Last week, the German bank cleared the Federal Reserve’s first test which evaluates every bank’s capital levels against a potential recession scenario.

The Fed board has also issued conditional non-objection to the capital plans of Goldman Sachs and Morgan Stanley requiring them to maintain capital distributions levels which they paid in recent years.

The failure in this stress test is not expected to affect dividend payouts but will require DB USA to make appropriate changes in its US operations, according to Reuters.

Additionally, the bank is also prevented from making any distributions to its parent company in Germany without Federal Reserve approval.

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