The WSJ has recently announced that two major foreign bank subsidiaries are expected to fail its stress tests - which limit the bank's ability to pay dividends and also force the banks to make plans to amend any shortcomings.
Ryan Tracy, Eyk Henning and Emily Glazer wrote this piece about DBs and Santander's shortcomings which essentially has more to do with how effective the banks measure and predict potential risks and losses - an important part of effective risk governance in the post crisis regulated world. As a practitioner, one can easily see how different banks might apply calculations differently which, when aggregated across business lines, may see large variations. The WSJ article may be found here: http://www.wsj.com/articles/u-s-units-of-deutsche-bank-santander-likely-to-fail-fed-stress-test-1424467951.
If this plays out as expected, this will be Santander''s second time in a row it has failed the US regulator's tests, while DB's position seems to be it is committed to make the necessary changes to improve its game.
Twister anyone?
One of the interesting features here is to underscore how different the US and European approaches to risk capture must be, as both banks are the largest in the Eurozone and both passed the European stress tests just several months back.
So, is this a sign of risk governance shortcomings on behalf of the banks or how it must be nearly impossible to meet the patchwork of different global regulations if banks like DB and Santander operate on a global scale? Anyone for a game of banking Twister?
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