US regulators have asked Deutsche Bank's senior executives to explain their "bad bank" proposals seeking to address concerns about the potentially significant impact on lender operations in the country.
Federal Reserve officials have in recent days reported key figures on the German bank who do not want to request further details of their plans, which are part of its shift away from the investment bank, according to three people with knowledge to the situation.
Under the proposals unveiled by the Financial Times last week, Deutsche plans to cut or close large parts of its trading business outside continental Europe.
While the size of the bad bank is still being decided, executives are considering putting as much as $ 50 billion into the bank. EUR worth of assets in it, according to two people with knowledge of the discussions. The new strategy is likely to lead to a significant reduction in its US business, according to some in the bank.
Fed officials were worried as they learned about the strategy, according to someone close to the situation, given the uncertainty about it now throwing over the entire company's US portfolio.
"There are lots of rumors around the scale of the cuts that the bank has to make," said one person in charge of contact between bankers and US regulators. "The Fed needs to know from Frankfurt how this will change its US business." Deutsche Bank refused to comment on the case.
The bank's US arm is limited from making payments to its parent company in Germany without Fed permission after failing its annual stress test last year because of what the Fed said was "widespread and critical shortcomings" in its capital planning.
Deutsche's American bank passed the first round of this year's stress test last week, but it will only find after another round later in the week whether it will be able to rid itself of these restrictions.
At the same time, the bank is also the subject of several investigations in the United States ̵
With the US bank undergoing major turmoil, executives in Frankfurt are preparing to reduce or close the entire US stock trading business, according to people informed about the plans. However, it is likely that it will retain its commercial banking business.