A financial crisis may be looming - but big banks are looking in the wrong place.

Despite frequent economic downturns and even more frequent instability in financial markets, severe crises of the global economy are rare, with only two in the last 100 years: the Great Depression of the 1930s and the Global Financial Crisis in the last decade.

But a report by the largest German bank Deutsche Bank fears a third crisis is looming – as suggested by its title, “The Next Financial Crisis”.

That Deutsche Bank should ring financial alarm bells seems singularly appropriate given that just a year ago this bank received a $14 billion fine for its contribution to a major trigger of the last crisis, malfeasance in the US sub-prime mortgage market.

And as if to confirm that this malfeasance did not arise from a moment of feckless folly, in early 2017 the British Financial Conduct Authority and the New York state Department of Financial Services together fined Deustsche Bank $630 million for laundering $10 billion of Russian crime money.

So how seriously should we take crisis warnings from a repeat financial offender? Should we derive our view from a variation of “takes a thief to know one”? The wise option is to assess the prima facie validity of the impending crisis arguments.

The arguments fall into three categories: laments for the end of quantitative easing (QE), economic instability in specific countries (China and Japan), fears of “populist” revolt (including following the divisions of Brexit), and trade imbalances across the globe. Glaring in its absence is concern about household debt, whose impact in Britain, continental Europe and the US could prove catastrophic.

Overall, the Deutsche Bank report tells us considerably more about the obsessions of the titans of finance than of the possibility of an imminent crisis. That a global bank would assign to QE five of the eleven crisis dangers should surprise no one. QE, central bank purchases of private sector securities, involved the largest private bank subsidy programme in the history of capitalism.

The purchase of non-performing private debt paper, especially by the US Federal Reserve and Bank of England, represented a subsidy of near 100%. That’s because at the end of the 2000s these outstanding loans were almost worthless.

Central bank buy-backs of government bonds, the other major QE form, offered banks a costless vehicle for profit taking through speculation – bonds converted to cash and the cash used to speculate in financial markets (including speculation on those same government bonds, which supports the generalization that no good deed goes unpunished).

It is quite understandable that anxiety would strike Deutsche Bank and banks in general at the prospect of the QE subsidy coming to its long overdue end. This anxiety links to fears of “populism”, by which the in-house experts at Deutsche Bank primarily mean political pressure to limit the cross-country movement of financial capital – especially speculative capital.

But self-serving as these putative crisis triggers may be, are they harbingers of global financial disaster? The simple answer is “no”. In as far as they refer to reality rather than the unstable expectations of speculators they reflect the dysfunctional behaviour derivative from a global economy, one in which finance dominates over productive activities.

The increasing possibility of a second major 21st century financial disaster comes from the real economy – non-rich households sinking deeper into debt as inequality grows, bankruptcies by producers of goods and services due to unstable demand, and, key to it all, growth depressing fiscal policies in the United States and Europe.

John Weeks is an economist and is Emeritus Professor at the School of African and Oriental Studies

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