Yet Another Troubled Bank, Still the Same Lesson

You might not have heard of Pfandbriefbank. Yet the small German mortgage lender offers a valuable cautionary tale about how global crises happen, and what authorities still must do to guard against the next one.

PBB, as it’s known, is heavily exposed to US commercial real estate and struggling to address a problem all too common among banks: Investors are worried that it might not have enough equity to absorb its potential losses. Equity is the bedrock of the financial system, the capital that shareholders provide to make loans and to take the first hit if things go wrong. Without it, banks are insolvent. They lack the resources to pay depositors and other creditors.