So our banks are using Deutsche Bank assets as hedges to potentially bad derivatives. Do I have that right?
Not exactly...the Deutsche Bank $48 trillion dollar derivative portfolio is a large un-exploded bomb left over from the last financial crisis.
American banks are in much better shape than they were in 2007-2008, and Dodd/Frank has worked to some extent to make things more stable...but the Europeans papered over their financial problems and its unknown what systemic reaction would occur if Deutsche Bank were to fail.
This chart is a little dated (2016) but gives some idea whats going on.