ECB reviews claims Deutsche Bank downplayed financial risks

[BRUSSELS] The European Central Bank is examining claims that Deutsche Bank underplayed risks in its balance sheet and gave a misleading picture of its financial health, the Financial Times reported on Tuesday (Nov 25).

The ECB is reviewing allegations made by former employee Dario Schiraldi, who is suing the bank, including claims about Deutsche’s use of so-called netting practices, the report said, citing people familiar with the matter.

According to the report, the ECB has made enquiries to the German lender about its netting practices in recent months as part of an assessment of the bank’s application of capital rules and collateral treatment.

Netting is a process of consolidating and offsetting multiple financial obligations that banks use to lower their credit risk exposure and the calculation of their regulatory capital requirements.

Deutsche Bank told Reuters that it applies netting in accordance with relevant accounting standards and generally aligned with common industry practice. The ECB did not immediately respond to a request for comment.

The ECB’s enquiries were part of a standard review of several lenders, the report said, adding that the watchdog has not yet decided whether to take any formal action in response to Schiraldi’s allegations, such as launching an investigation.

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In his letter to the ECB, Schiraldi said that Deutsche’s balance sheet was “materially affected by aggressive netting and off-balance-sheet accounting techniques”, FT reported.

He said that this practice had led to the “apparent understatement of leverage exposures by over US$230.52 billion” in Deutsche’s 2024 financial statements, the newspaper added. REUTERS