Deutsche Bank is Germany’s largest financial institution, a crucial lender to the nation’s export machine. But its status as an institution that is too big to fail has clashed with Germany’s public aversion to bailouts — be they for countries (like Greece) or banks.
Ms. Merkel and Germany’s main representative at the European Central Bank, Jens Weidmann, have led the way in this position, spurring a raft of legal measures from Brussels intended to prevent the kind of bank rescues that occurred during the financial crisis.
For most of this year, Deutsche Bank’s stock has been a favorite target of hedge funds, many of which have been goaded by rumors and private reports.
In trading in Frankfurt on Monday, shares of Deutsche Bank closed down 7.5 percent, hitting lows not seen in recent history. In London and New York, shares of other global banking giants fell 2 percent or more.
Deutsche Bank shares are now trading at just 23 percent of the bank’s value — a valuation that calls into serious question the quality of the assets that Deutsche Bank is holding on its balance sheet.
“There is just not a good enough return there for your risk,” said Didier Saint-Georges, a member of the investment committee at Carmignac, a large asset manager based in Paris.
Mr. Cryan, the Deutsche Bank chief, has talked boldly about shifting its focus to businesses like asset management, but its finances are suffering badly because so much revenue comes from trading bonds and derivatives — areas in steep decline these days on Wall Street.
And because many of the bank’s large global peers have already put in place similar strategic shifts, it remains unclear how successful Deutsche’s turnaround will be.
The lender posted a huge loss last year after it took 5.2 billion euros, or about $5.8 billion, in charges related to legal costs for past wrongdoing and endured a 58 percent plunge in profit in this year’s first quarter.
The Federal Reserve also gave a failing grade to its United States subsidiary in stress tests.
It is to be expected that after negotiations, the size of the settlement sought by American regulators will come down substantially from $14 billion.
Last week, Germany’s largest lender said that it had “no intent to settle these potential civil claims anywhere near the number cited.”
Nevertheless, there seems to be little doubt now that, whatever size the punishment, the bank will be forced to seek a cash infusion — be it from investors or some other source.
Deutsche Bank’s cash woes highlight Europe’s continuing struggle as well, in terms of giving comfort to investors over the health of its banking sector — especially in comparison with American banking regulators.
To some fanfare, Europe established the Single Supervisory Mechanism, or S.S.M., which puts banking oversight in the hands of the European Central Bank in Frankfurt. And there are clear rules in place that describe how troubled banks are to receive assistance; the main requirement is that bond investors share in the losses.
Still, experts say they believe that the regulatory body needs to be more vocal and proactive when flagging its actions.
“The system to handle these things is in place,” said Karel Lannoo, the head of the Center for European Policy Studies. “But the market knows that there is a problem, and to be credible the S.S.M. has to take a position — be it Italian loans or Deutsche Bank.”
Italian banks are laboring under a mountain of nonperforming loans, and few believe that the sector as a whole has enough cash to deal with these stagnating assets.
At Deutsche Bank, the problem is magnified because even though the bank is sitting on €1.9 trillion in assets, including one of the largest derivatives pools in Europe, it has the deposit base of a second-tier bank in Italy or Spain — about €447 billion.
That means that unlike larger deposit-based banks — JPMorgan Chase or Barclays, for example — Deutsche Bank relies more on shorter-term loans to fund riskier trading businesses. That is the type of banking model that sent Bear Stearns and Lehman Brothers to their doom.
Compared with their European peers, large banks in the United States are widely regarded by analysts to be financially more robust, having been forced by regulators to raise capital several years ago.
Still, in a speech on Monday, Daniel K. Tarullo, a Federal Reserve governor known for his hawkish views on the oversight of financial institutions, said that large American banks would be asked to increase their cash levels.
The added safety cushion would be in the form of a so-called stress capital buffer that would protect large banks during times of maximum stress.
Such a move has been criticized by some as unnecessary in light of how much bank safety has improved since the crisis. Banks now face severe restrictions when it comes to trading activities, and there is also a road map to follow should a bank need to be closed down.
But Mr. Tarullo said in his speech that these and other steps should not prevent the Fed from promoting “systemic stability” and ensuring that a large bank does not run short of cash.