Deutsche Bank plans to shrink its balance sheet substantially over the next 2½ years to comply with new rules to make banks more crisis-resistant, according to sources.

Germany's biggest bank expects to give details of its plans when it presents second-quarter results today, one of the sources said. The Financial Times reported that Deutsche Bank plans to cut its balance sheet by up to 20 per cent to reach a minimum 3 per cent leverage ratio by the end of 2015. The paper cited people briefed on the plans. Deutsche Bank declined to comment.

These plans follow the latest action by financial regulators to ensure banks can cope with future problems themselves rather than rely on the taxpayer-funded bailouts that followed the 2007-2009 financial crisis.

Regulators are currently focused on keeping bank risks in check via banks’ leverage ratio, which measures a bank’s assets (loans etc) against its shareholder equity without having to rely on the bank’s own assessment of how risky its assets are.

They want banks to have a leverage ratio of 3 per cent by 2018, with mandatory reporting of the figure to start in 2015. The exact way to calculate it is still under review. One way a bank can comply is to cut its balance sheet.

Deutsche Bank's chief financial officer Stefan Krause told German daily Boersen-Zeitung this month the bank aims to cut its cash pile, decrease non-core assets and look at reducing other activities.

“In the (financial) crisis, we have held a relatively large liquidity buffer,” Krause told the paper.

Deutsche Bank’s plans to trim its balance sheet will likely not have a large impact on earnings, the sources familiar with the bank said.

Analysts took the opposite view. Philipp Haessler from brokerage Equinet said speeding up shrinking the balance sheet was probably a good idea but agreed that earnings were unlikely to be spared.– (Reuters)