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It is a tad ironic that Deutsche Bank recently published a paper with recommendations for how the European banking system could be repaired.

The cause of the European disease is politics. The U.S. took to decisive measures to maintain the liquidity of its banking system in the financial crisis – even in face of opposition from some institutes. Afterwards, the government and regulator combined a strict approach on capital requirements with flexibility to allow U.S. banks flourish in the post-crisis era.

The European Commission and European Central Bank by contrast pursued a strict schedule for the implementatio of directives and regulation – an approach that weighed on profitability of European banks.

Worst-Case Scenario

The idea of a national champion shows how the EU failed with its pursuit of the common interest – because the latter would speak in favor of a supra-national champion.

But, as neither Deutsche nor Commerzbank currently are in a condition required for a merger among equals with for instance BNP Paribas or Santander, they would simply be swallowed and be bereft of their identity. In the eyes of the Berlin government, this scenario is very much akin to the worst case.

Someone Else’s Debt

The possibility of a sale of UBS or Credit Suisse would have the alarm bells ringing in Bern too, there's no doubt about that. But this is not an issue, for the moment. Both had plenty to do after the financial crisis and billions were spent on beefing up regulation. But they were unscathed by some of the persistent problems facing European banking.

They weren’t for instance called upon to help with the sovereign debt doom loop and to buy the securities issued by Greece or Italy – one of the problems that beset Commerzbank.

Suffering and Failing

In addition, both UBS – and belatedly – Credit Suisse managed to refocus their business on to a less risky segment, wealth management. Deutsche Bank by contrast has failed to do so.

As such, it is about failing and about suffering – and a new national champion should emerge from a different set of conditions.