Fair Value Hierarchy – Valuation Techniques with Unobservable Parameters


Financial instruments carried at fair value are categorized under the three levels of the IFRS fair value hierarchy depending upon whether their values were determined based upon quoted prices in an active market (“Level 1”), valuation techniques with observable parameters (“Level 2”) or valuation techniques with one or more significant unobservable parameters (“Level 3”). Level 3 assets include complex OTC derivatives, illiquid loans and certain structured bonds.

Total Level 3 assets were € 58 billion as of June 30, 2010, which was equivalent to 5 % of total fair value assets (versus € 56 billion, or 5 %, as of March 31, 2010). The increase in Level 3 assets of € 2 billion during the three months ended June 30, 2010 was mainly attributable to changes in the fair value of derivative instruments due to the widening of credit spreads and the foreign exchange effect of translating certain U.S. dollar denominated assets into euro at the reporting date.

Total Level 3 liabilities were € 20 billion as of June 30, 2010 which was equivalent to 2 % of total fair value liabilities (versus € 19 billion, or 2 %, as of March 31, 2010).

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