SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” (“SFAS 107”) requires the disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation techniques. These derived fair values are significantly affected by assumptions used, principally the timing of future cash flows and the discount rate. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values would not necessarily be realized in an immediate sale or settlement of the instrument. The disclosure requirements of SFAS 107 exclude certain financial instruments and all nonfinancial instruments (e.g., franchise value of businesses). Accordingly, the aggregate fair value amounts presented do not represent management's estimation of the underlying value of the Group.
The following are the estimated fair values of the Group's financial instruments recognized on the Consolidated Balance Sheet, followed by a general description of the methods and assumptions used to estimate such fair values.
| Carrying Amount | Fair Value | |||
| in € m. | Dec 31, 2003 | Dec 31, 2002 | Dec 31, 2003 | Dec 31, 2002 |
| Financial Assets | ||||
| Cash and due from banks | 6,636 | 8,979 | 6,636 | 8,979 |
| Interest-earning deposits with banks | 14,649 | 25,691 | 14,660 | 25,715 |
| Central bank funds sold and securities purchased under resale agreements and securities borrowed | 185,215 | 155,258 | 185,351 | 155,302 |
| Trading assets | 345,371 | 294,679 | 345,371 | 294,679 |
| Securities available for sale | 24,631 | 21,619 | 24,631 | 21,619 |
| Other investments | 2,398 | 4,504 | 2,398 | 4,504 |
| Loans (excluding leases), net | 140,963 | 163,002 | 143,014 | 165,486 |
| Other financial assets | 53,812 | 49,201 | 53,812 | 49,211 |
| Financial Liabilities | ||||
| Noninterest-bearing deposits | 28,168 | 30,558 | 28,168 | 30,558 |
| Interest-bearing deposits | 277,986 | 297,067 | 278,262 | 296,936 |
| Trading liabilities | 153,234 | 131,212 | 153,234 | 131,212 |
| Central bank funds purchased and securities sold under repurchase agreements and securities loaned | 117,250 | 99,499 | 117,348 | 99,515 |
| Other short-term borrowings | 22,290 | 11,573 | 22,315 | 11,581 |
| Other financial liabilities | 72,132 | 46,718 | 72,126 | 46,693 |
| Long-term debt1 | 97,480 | 107,158 | 97,848 | 108,414 |
| 1 | Includes trust preferred securities as of December 31, 2002. |
Methods and Assumptions
For short-term financial instruments, defined as those with remaining maturities of 90 days or less, the carrying amounts were considered to be a reasonable estimate of fair value. The following instruments were predominantly short-term:
| Assets |
Liabilities |
| Cash and due from banks |
Interest-bearing deposits |
| Central bank funds sold and securities purchased |
Central bank funds purchased and securities sold under repurchase agreements and securities loaned |
| under resale agreements and securities borrowed | |
| Interest-earning deposits with banks |
Other short-term borrowings |
| Other financial assets |
Other financial liabilities |
For those components of the above listed financial instruments with remaining maturities greater than 90 days, fair value was determined by discounting contractual cash flows using rates which could be earned for assets with similar remaining maturities and, in the case of liabilities, rates at which the liabilities with similar remaining maturities could be issued as of the balance sheet date.
Trading assets (including derivatives ), trading liabilities and securities available for sale are carried at their fair values.
For short-term loans and variable rate loans which reprice within 90 days, the carrying value was considered to be a reasonable estimate of fair value. For those loans for which quoted market prices were available, fair value was based on such prices. For other types of loans, fair value was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In addition, the specific loss component of the allowance for loan losses, including recoverable amounts of collateral, was considered in the fair value determination of loans. Other investments consist primarily of investments in equity instruments (excluding, in accordance with SFAS 107, investments accounted for under the equity method ).
Other financial assets consisted primarily of accounts receivable, accrued interest receivable, cash and cash margins with brokers and due from customers on acceptances.
Noninterest-bearing deposits do not have defined maturities. Fair value represents the amount payable on demand as of the balance sheet date.
Other financial liabilities consisted primarily of accounts payable, accrued interest payable, accrued expenses and acceptances outstanding.
The fair value of long-term debt was estimated by using market quotes, as well as discounting the remaining contractual cash flows using a rate at which the Group could issue debt with a similar remaining maturity as of the balance sheet date.
The fair value of commitments to extend credit was estimated by using market quotes. On this basis, at December 31, 2003, the fair value of commitments to extend credit approximated the allowance for these commitments of € 101 million.