Conventional wisdom about embattled German institution Deutsche Bank is that even though it's short on capital, it's in no danger of failing because it has enough assets to sell to pay off any liabilities on the horizon.
The longer-term problem, though, is that a capital problem can morph into a liquidity problem.
While that's arguably a worst-case scenario for the current difficulties in which Deutsche finds itself, it's not a remote one. Virtually no analysts at this point seriously entertain the possibility that the bank might fail, but the specter of a sudden freeze in the rapid-fire world in which big banks conduct business has frayed nerves in the market.
The storyline goes something like this: Let's say you're selling a guitar. You're selling it because your music room is getting too crowded, not because you need the money. You offer the guitar to a friend for what you want, not what you need. In essence, you're setting the price.
Alternatively, imagine you're selling the guitar because you are low on cash and need the money to pay the rent this month. Suddenly, you're not setting the price anymore, the buyer is.
Such can be the case in the fickle financial marketplace, particularly in a case like Deutsche's. The bank has some valuable tangible assets on its balance sheet — Postbank, Deutsche Bank Asset Management and a stake in China's Huaxia Bank, to name three — but also has a high level of hard-to-value derivatives.
Representatives from Deutsche Bank were not immediately available for comment. The bank has countered worries over its stability, repeatedly emphasizing that it has a "stable financial position."