World Economy

Fed Fines Deutsche Bank for Breaking Volcker Rule

Fed Fines Deutsche Bank for Breaking Volcker RuleFed Fines Deutsche Bank for Breaking Volcker Rule

Deutsche Bank AG was hit with the Federal Reserve’s first major fine for failing to ensure traders abide by the Volcker Rule’s ban on risky market bets—and will pay even more for letting currency desks chat online with competitors, allegedly revealing positions.

The simultaneous sanctions, totaling almost $157 million, fault lax oversight of traders that persisted into last year. The company—which raised $8.5 billion from investors this month to recapitalize—admitted to the Fed in March 2016 that it still lacked adequate systems for keeping tabs on dealings that might run afoul of the Volcker ban, Bloomberg reported.

“Significant gaps existed across key aspects of Deutsche Bank’s Volcker Rule compliance program,” the Fed said Thursday, fining the firm $19.7 million for the lapses. As for chats, the bank failed to detect that currency traders engaged in “unsafe and unsound conduct”, disclosing some positions or talking about coordinating strategies, the Fed said. The company will pay $136.9 million for that.

Germany’s largest bank is trying to refocus on growth after probes and legal disputes sapped years of earnings, pushing the firm to tap investors to shore up capital. Yet the Fed wasn’t the only regulator examining the currency chat rooms. New York’s Department of Financial Services, which has a track record of demanding stiffer penalties than the Fed, has been preparing to sanction the firm as well, a person familiar with the matter said last month.

“We are pleased to resolve these civil enforcement matters with the Federal Reserve,” said Renee Calabro, a Deutsche Bank spokeswoman, declining to comment further on Thursday’s cases. In December, the lender agreed to settle a US mortgage-backed securities probe for $7.2 billion.

The Volcker Rule, named for former Fed Chairman Paul Volcker, seeks to make the financial system safer by barring banks with federally insured deposits from betting their own money. Such wagers once drove epic profits and bonuses in the years before 2008’s financial crisis.

Transcripts of chats between Deutsche Bank traders and those from other banks emerged more than a year ago in civil litigation over the matter filed in Manhattan, and the US Justice Department had been looking into the bank’s currency-trading activities. In March, the bank said the department had informed it that the US criminal inquiry had been closed without action.

In Thursday’s chat-room settlement, the Fed ordered the bank to improve its senior management’s oversight of foreign exchange trading and cooperate in any investigations of the individuals involved.


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