FRANKFURT â€" Deutsche Bank, Europe’s largest investment bank, indicated Monday that it could shrink its stockpile of financial holdings if needed to meet tougher regulatory requirements, though it declined to comment on reports that it had already decided to do so.
Banks around the world are under increasing pressure from regulators to reduce risk, and Deutsche Bank is considered particularly vulnerable because by some measures, it uses an unusually high proportion of borrowed money to do business.
Deutsche Bank would not comment on reports in The Financial Times and by Reuters that it was planning to cut its total assets â€" the sum of its financial holdings â€" by about 20 percent. Such a step would require it to dispose of tens of billions of euros in derivatives or other investments.
But there is no question that big banks have been losing ground in recent weeks in a debate over how much of other people’s money they are allowed to use to do business. American regulators as well as the Basel Committee on Banking Supervision, which sets global standards for lenders, have proposed rules recently that would further restrict banks’ use of leverage â€" borrowed money â€" and require them to hold a higher percentage of their own wholly owned cash or equity.
It would not be a surprise, as a result, if Deutsche Bank decided pre-emptively to pare back the total volume of its use of borrowed funds as a way of addressing regulators’ concerns. If Deutsche Bank does announce a plan to reduce its assets, it would probably do so on July 30, when it discloses second-quarter earnings.
To increase their ratio of capital to leverage, banks can either raise more money or shrink the total size of their financial holdings, or a combination of both. To increase capital, they must either sell new shares to investors or retain profit rather than paying out the money to shareholders. Executive bonuses may also take a hit. Therefore it may be more attractive for banks to reduce the size of their holdings.
A bank spokesman on Monday referred to a statement this month by Stefan Krause, Deutsche Bank’s chief financial officer, in which he said that the German lender was in a position to cut assets if it had to in the face of increasingly aggressive regulators.
‘‘We’re well prepared,’’ Mr. Krause said in an interview published July 6 by the Börsen Zeitung, a financial newspaper.
In the latest sign that regulators are taking a harder line on banks’ capital buffers, the European Banking Authority issued a statement Monday calling on national regulators in the European Union not to allow slippage in bank capital levels. European banks were required last year to build up their financial buffers, though there are still widespread doubts about the health of the banking system in many countries, including Germany.
In addition, United States regulators are seeking to increase capital requirements for foreign banks operating in America. That rule could have an especially large effect on Deutsche Bank, which has a big presence on Wall Street and is the world’s biggest investment bank not based in the United States.
In the interview with Börsen Zeitung, Mr. Krause said that Deutsche Bank could reduce its exposure to derivatives as one way to shrink total assets. Deutsche Bank’s derivatives portfolio is valued at more than 1 trillion euros, or $1.3 trillion.
What is more, Mr. Krause said, the bank is already in the process of selling 90 billion euros in so-called noncore assets that it does not consider an essential part of its business.
Despite the prospect of smaller dividend payments to investors, shares of Deutsche Bank rose more than 1 percent in Frankfurt trading Monday. Shareholders may welcome a stronger capital base because it makes the bank less prone to failure and better able to absorb losses if there is a crisis.
In April, Deutsche Bank sold 3 billion euros in new shares as a way of increasing capital. But that step was not enough to silence criticism that the bank is among the most highly leveraged big banks in the world.
Banking industry representatives have complained that higher capital requirements will require them to curtail lending. But critics call that a spurious argument and note that European banks, Deutsche Bank included, have been tight-fisted on lending since the financial crisis â€" not because of capital requirements but because lending is less profitable than activities like trading.
For their part, Deutsche Bank executives have argued that the bank is among the best capitalized in the world using a measure preferred by German regulators. But that measure, which allows banks to deploy less capital for investments that are considered less risky, has been falling out of favor.
Among regulators, sentiment has been building for a simpler measure known as a leverage ratio, which supporters say is less prone to manipulation by banks.
Banks in Europe are not required to disclose their leverage ratios, which can vary widely according to how assets are valued. But analysts at Berenberg Bank have calculated that Deutsche Bank’s leverage ratio is 2 percent, meaning that it borrows $50 for every $1 of its own money. That makes Deutsche Bank one of the most leveraged banks in Europe.
Mr. Krause told Börsen Zeitung that the bank’s leverage ratio was over 3 percent, enough to comply with regulations that will take effect in 2019. But many economists would consider even that ratio scandalously low, and there is growing political momentum for higher ratios. Under proposed regulations, for example, the United States’ eight largest domestic banks would be required to maintain leverage ratios of 6 percent.
