(Adds U.S. Treasury Secretary comment on European banks)
By Jan Strupczewski and David Lawder
WASHINGTON Oct 7 World finance leaders issued
fresh warnings about economic stability risks on Friday amid
worries about a massive U.S. fine for Deutsche Bank
destabilizing Germany's largest bank, a sharp fall in the
British pound and weak global growth.
Jeroen Dijsselbloem, the chairman of euro zone finance
ministers, said that the U.S. Department of Justice's demand
that Deutsche Bank pay $14 billion for its role in the sub-prime
mortgage crisis is too big and will undermine financial
"Let's hope it is an opening bid," Dijsselbloem told Reuters
in an interview on the sidelines of the International Monetary
Fund and World Bank annual meetings in Washington. "These kinds
of fines are completely oversized, and they are damaging to
Deutsche Bank has been struggling to overhaul its business
model that is built around trading activities that have become
much less lucrative under new regulation enacted since the
2008-2009 financial crisis.
"Here is a financial institution which needs to be
restructured and strengthened and needs to bring in new capital
and we cannot then have an even bigger amount of capital being
pulled out by the American authorities. That is really
counterproductive to put it mildly," Dijsselbloem said.
U.S. Treasury Secretary Jack Lew declined to comment
specifically on Deutsche Bank, but said that Europe needed to do
more to ensure that its banks were adequately capitalized and
ready to deal with future risks to stability.
"We've also been clear that Europe has not done as much as
the United States and this is a case where sometimes doing more
is better," Lew told a news conference, referring to new capital
requirments and regulations imposed on U.S. banks after the last
German Finance Minister Wolfgang Schaeuble earlier said that
a new financial crisis could not be ruled out and that the IMF
is backing up his longstanding warnings about the risks to the
banking system from "ultra-loose" monetary policy.
Speaking at a news conference to discuss Germany's
leadership of the G20 major economy meetings in 2017, Schaeuble
declined to answer direct questions about Deutsche Bank's
But he repeated his sharp criticism of "ultra-loose monetary
policy," which includes the negative interest rates and other
unconventional strategies of the European Central Bank aimed at
jolting Europe out of extremely weak growth.
"The danger of a new crisis has not completely vanished,"
IMF officials have said this week that Deutsch Bank needs to
reassess its business model to maintain profits and capital in
what is expected to be a long era of low rates that will
Deutsche shares rose on Friday after Reuters reported that
Qatari investors who own a nearly 10 percent stake in the bank
do not plan to sell their shares.
POUND'S "FLASH CRASH"
The British pound lost more than 10 percent of its value
early on Friday in a massive "flash crash" that underscored
concerns about Britain's economic stability as it starts to
negotiate an exit from the European Union
Dijsselbloem said the sharp drop reflected investor
disappointment in what he views as the British government's
moves toward a "hard Brexit" - a divorce that would leave
Britain without the full trade and economic benefits of full
participation in the market of nearly 500 million people.
"If the message remains the 'hard Brexit,' if that is really
the way the British government wants to proceed, you can't be
surprised that the pound will go down. I think that is what is
happening," Dijsselbloem told Reuters.
But British Finance Minister Philip Hammond told reporters
that no decisions had been taken on Britain's negotiating stance
after Prime Minister Theresa May said the two-year negotiating
process would start next March.
"Everything is negotiable," Hammond said, including terms of
a Britain-EU customs union.
Hammond said the pound's drop earlier in the week was due to
May's confirmation that Britain would definitely leave the EU
and was "part of a pattern of turbulence that I would expect to
(Reporting by Jan Strupczewski, David Lawder and David Chance;
Writing by David Lawder; Editing by Andrea Ricci)