Deutsche Bank AG (DB) would sell some U.S. assets and transfer systemically important assets and liabilities to a German government-owned bridge bank if it were to fail, under the terms of a "living will" contingency plan it submitted to U.S. regulators.
"[German regulator] BaFin would issue a transfer order pursuant to which all or part of the assets, liabilities and material contracts" that are systemically important would be transferred into a German government-owned special purpose vehicle, called a "bridge bank," Deutsche Bank said in the crisis resolution scheme.
The plan was requested by U.S. regulators to guide the banks' liquidation in the case of severe crisis. More than 100 large financial firms are required to submit living wills to the Federal Reserve and the Federal Deposit Insurance Corp. This was demanded by the 2010 Dodd-Frank financial overhaul to halt the perception that such firms are "too big to fail," or so large and complex that the government would be pressured to rescue them in a crisis.
In the case of Deutsche Bank, the bridge bank would continue to operate the systemically important or "good" parts of the bank for a period of time, Deutsche Bank said. The rest would be wound down at the expense of equity holders and creditors.
Deutsche Bank said it assumes U.S. regulators would cooperate with Germany's BaFin, which would establish an order for the assets to be transferred to the bridge bank.
While some banks suggested concrete steps for a break-up in their living wills, Deutsche Bank only said "some of the U.S. businesses would be saleable to third-party purchasers, including other foreign financial institutions, certain U.S. banks and non-bank financial institutions," adding that other U.S. businesses may need to be wound down.
Citigroup (C) in its report argued for a quick sale of its brokerage businesses and Goldman Sachs (GS) backed quick piecemeal sales of all its business lines to avoid liquidation of the whole institution.
Goldman Sachs said that in the event it goes under, it would be better to sell its various businesses individually rather than to initiate a company-wide asset liquidation that could weigh on markets.