Too Big to Fail? These 2 Major Investment Banks Are Struggling Right Now

Should these banks be bailed out?

Credit Suisse and Deutsche Bank may both be struggling right now, but does that mean they're "too big to fail"? According to real estate agent and YouTube personality Graham Stephan, these two troubled banks may bring down the economy. He recently tweeted:

"$600 Billion: What Lehman Brothers held in assets when they crashed and took the economy with them.

$2,800 Billion: What Credit Suisse and Deutsche Bank control in AUM. 4.6x more.

Credit Suisse is at a 'Critical Moment' now, says the CEO.

What lies in store for the world?"

When it comes to the world's major investment banks, there are a few that stand out above the rest. But of those, Credit Suisse and Deutsche Bank are two of the biggest. And unfortunately for them, both banks are currently going through tough times.

Credit Suisse

Credit Suisse is currently in the midst of a major restructuring plan, which has seen the bank cut thousands of jobs and close many of its offices around the world. The Swiss bank is also facing a number of investigations and lawsuits, which could lead to hefty fines.

As Switzerland's second-largest bank, some experts say the restructuring is not enough. The bank may have a shortfall of $9 billion. Since the beginning of the year, Credit Suisse shares have plummeted almost 50%, twice as much as the S&P 500. The bank is planning to sell off assets in an attempt to emerge from its financial distress.

Stephan points out that, "Credit Suisse's credit default swaps (CDS) costs have hit the highest level since 2008!" in a recent tweet. "A CDS is essentially an insurance purchased against a potential default."

Deutsche Bank

Deutsche Bank, meanwhile, is also going through a major overhaul. The German lender has announced plans to cut thousands of jobs, close hundreds of branches, and sell off some of its businesses. Like Credit Suisse, Deutsche Bank is also facing a number of investigations and lawsuits.

Deutsche Bank is facing investigations over tax fraud in one of Europe's biggest scandals. The Frankfurt HQ and 10 current employees' homes were raided this week by local police as part of an ongoing probe into whether they improperly handled billions of dollars of government money. Its stock price has also suffered this year.

In a recent tweet, Stephan states, "At the moment, not much is known about the reason behind Deutsche bank's underperformance. Currently, they are trading at ~0.3x book value and concerns had been raised earlier about their exposure to the derivatives market."

Too big to fail?

The troubles at both banks have led many to question whether they are "too big to fail." In other words, are they so large and important that their collapse would be catastrophic for the global financial system?

According to Graham, "Both Credit Suisse and Deutsche are the biggest banks in Switzerland and Germany respectively and have a history of more than 150 years. They are also considered to be G-SIB's (Global Systemically Important Banks) making a bailout likely in case of any serious issues." He continues, "Both Credit Suisse and Deutsche Bank are designated as systemically important financial institutions (SIFI): i.e. they are 'too big to fail.'"

The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, every year since 2011, identified a list of G-SIBs. Any financial institution that is a SIFI is considered "too big to fail" and according to regulators poses a serious risk to the economy if it were to collapse. These banks have to meet more stringent requirements and are subject to greater scrutiny.

Should Credit Suisse and Deutsche Bank be bailed out if they go under? There's no easy answer to that question. On the one hand, both banks are clearly struggling right now and their future is far from certain. On the other hand, they are still two of the largest and most important banks in the world, impacting not just Switzerland and Germany, but the global economy.