Rethinking Bank Shareholder Equity: The Case of Deutsche Bank

Accounting Forum (2017), DOI: 10.1016/j.accfor.2017.06.003

Accounting, Economics and Law Research Network Conference, SASE 2017 Annual Meeting, Lyon, 29 June-1 July 2017

34th Symposium on Money, Banking and Finance, University of Paris Ouest Nanterre, Paris, 5-6 July 2017

33 Pages Posted: 20 Feb 2017 Last revised: 4 Sep 2017

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Imke Graeff

Labex ReFi; ESCP Europe

Date Written: July 29, 2017

Abstract

Do you believe that bank shareholder equity provides an indefinitely lasting source of funding which covers for (residual) risk and loss-absorption? Our innovative approach clarifies and disentangles actual shareholder contribution to bank equity. This case study applies it to Deutsche Bank, a European systemically important institution, from 2001 to 2015. Our analysis shows that bank shareholder equity lasted for less than three months in 2007 in the bank entity, while payout policies exhausted shareholder contribution to loss-absorbing capital in 2006-2008. Since 2005, shareholder contribution to Tier 1 Capital remained below 10%. According to our findings, the actual contribution by shareholders to bank equity capital was limited, while shareholder payout policies, including share buybacks and trading on its own shares, were material. These findings raise concerns on the actual capacity by shareholder equity to assure protection against (residual) risk and loss absorption. Customer and investor protections appear to lay with bank entity equity dynamics. These findings have implications for bank financial sustainability and resilience, company capital maintenance, and regulatory capital requirements. Further developments based upon this innovative methodology may improve on existing prudential and accounting regulations.

Keywords: Capital requirements, Basel III, Bank equity presentation, Bank equity composition, Shareholder equity movements, financial analysis, capital adequacy, equity quality, capital movements, transactions with shareholders

JEL Classification: G21, G28, G34, G35, G38, M41, D83

Suggested Citation

Biondi, Yuri and Graeff, Imke, Rethinking Bank Shareholder Equity: The Case of Deutsche Bank (July 29, 2017). Accounting Forum (2017), DOI: 10.1016/j.accfor.2017.06.003 ; Accounting, Economics and Law Research Network Conference, SASE 2017 Annual Meeting, Lyon, 29 June-1 July 2017; 34th Symposium on Money, Banking and Finance, University of Paris Ouest Nanterre, Paris, 5-6 July 2017. Available at SSRN: https://ssrn.com/abstract=2920445 or http://dx.doi.org/10.2139/ssrn.2920445

Yuri Biondi (Contact Author)

French National Center for Scientific Research (CNRS) ( email )

IRISSO - University Paris Dauphine PSL
Place Marechal Lattre Tassigny
75016 Paris
France

HOME PAGE: http://yuri.biondi.free.fr/

Imke Graeff

Labex ReFi ( email )

79 avenue de la République
Paris, 75011
France

ESCP Europe ( email )

79, avenue de la République
Paris, 75011
France

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