The implications of a Deutsche-Commerzbank merger
Deutsche Bank and Commerzbank are presently discussing merger talks. The fact that these meetings are occurring is a signal that Germany’s banking troubles are indeed accelerating.
They are desperately seeking ways in order to cut costs and improve profitability. These plans include restructuring and job cuts using most highly unconventional measures. Last June, Reuters cited anonymous sources as saying that Commerzbank was exploring the option of hoarding billions of euros in vaults as a way of avoiding paying a penalty to the European Central Bank, which is due to negative interest rates.
Their main problems are derived mostly from both low and negative interest rates. These lenders are used to depending on interest rate margins for income while offering some services to depositors at either low or no cost. Low interest rates have significantly eroded these banks’ abilities to make money. It has become difficult for German banks to give incentives to their customers so as to keep their money in their financial institutions. These inefficiencies and the intense competition within the German banking sector have already led to serious financial difficulties. If one combines these factors with the new challenge of declining interest rates, what possible positive impact can they expect to incur?
Interestingly, rates are not just low within the context of American history, but they also happen to be at their lowest levels ever in over 5,000 years of civilization.
Deutsche Bank is not merely Germany’s biggest bank, but the political role that it plays in Germany is unique when compared to other countries. Deutsche Bank’s importance to Germany is many times greater than that of an investment bank like Lehman Brothers was to the U.S. in 2008. Deutsche Bank is technically a private bank, however, it is informally tied to the government and formally tied to most major German corporations. The banks’ fate will have an impact on all of Germany.