Overall Risk Position


Economic Capital

To determine our overall (nonregulatory) risk position, we generally consider diversification benefits across risk types except for business risk, which we aggregate by simple addition.

The table below shows our overall risk position as measured by the economic capital usage calculated for credit, market, operational and business risk for the dates specified.

in € m.

Dec 31, 2011

Dec 31, 2010

Economic capital usage

 

 

Credit risk

12,812

12,785

Market Risk

12,003

13,160

Trading market risk

4,724

6,420

Nontrading market risk

7,278

6,740

Operational risk

4,846

3,682

Diversification benefit across credit, market and operational risk

(4,264)

(3,534)

Sub-total credit, market and operational risk

25,397

26,093

Business risk

980

1,085

Total economic capital usage

26,377

27,178

As of December 31, 2011, our economic capital usage totaled € 26.4 billion, which is € 801 million, or 3 %, below the € 27.2 billion economic capital usage as of December 31, 2010. The lower overall risk position was mainly driven by decreases in trading market risk economic capital reflecting risk reductions as well as defensive positioning, off-set by higher operational risk economic capital principally reflecting a new safety margin intended to cover unforeseen legal risks from the current financial crisis.

As of December 31, 2011, the economic capital usage included € 4.3 billion in relation to Postbank, which is € 259 million or 6 % lower than the € 4.6 billion economic capital as at December 31, 2010. This decrease reflects de-risking effects, resulting in a credit risk economic capital reduction of € 1.3 billion, which was partially offset by parameter and model alignment related increases, also in credit risk related economic capital, of € 947 million.

Our economic capital usage for credit risk totaled € 12.8 billion as of December 31, 2011. The increase of € 27 million, a change below 1 %, primarily reflects the effects from our risk reduction initiatives, compensated by the impact from regular recalibrations of the credit risk parameters and other refinements of the credit risk model mainly in relation to Postbank.

Our economic capital usage for market risk decreased by € 1.2 billion, or 9 %, to € 12.0 billion as of December 31, 2011. The reduction was driven by trading market risk, which decreased by € 1.7 billion, or 26 %, primarily driven by the above mentioned risk reductions and defensive positioning resulting in a lower market risk profile. Non trading market risk economic capital usage increased by € 538 million, or 8 %, primarily reflecting the increase in strategic investment and structural FX positions, which was partially offset by lower economic capital for our Guaranteed Funds portfolio as well as asset sales.

Our economic capital usage for operational risk increased by € 1.2 billion, or 32 %, to € 4.8 billion as of December 31, 2011. The increase is primarily due to the implementation of a new safety margin applied in our AMA model, intended to cover unforeseen legal risks from the current financial crisis.

Business risk economic capital usage, consisting of a strategic risk and a tax risk component, totaled € 980 million as of December 31, 2011 reflecting a moderate reduction of € 105 million or 10 % in comparison to an economic capital usage of 1.1 billion as of December 2010.

The diversification effect of the economic capital usage across credit, market and operational risk increased by € 729 million, or 21 %, as of December 31, 2011 mainly reflecting changes in risk classes as outlined above and the relatively low correlation of operational risk economic capital with both credit and market risk economic capital.

The table below shows the economic capital usage of our business segments for the dates specified.

in € m.

Dec 31, 2011

Dec 31, 2010

Corporate & Investment Bank

14,469

16,119

Corporate Banking & Securities

13,175

14,828

Global Transaction Banking

1,294

1,291

Private Clients and Asset Management

8,897

9,394

Asset and Wealth Management

1,703

2,717

Private & Business Clients

7,193

6,677

Corporate Investments

1,618

902

Consolidation & Adjustments

1,393

762

Total economic capital requirement

26,377

27,178

The future allocation of economic capital may change to reflect refinements in our risk measurement methodology.

Internal Capital Adequacy

As the primary measure of our Internal Capital Adequacy Assessment Process (ICAAP) we assess our internal capital adequacy based on our “gone concern approach” as the ratio of our total capital supply divided by our total capital demand as shown in the table below. During 2011 we tightened our capital supply definition for deferred tax assets, fair value adjustments and noncontrolling interests in accordance with regulatory guidance. The prior year comparison information has been adjusted accordingly.

in € m. (unless stated otherwise)

Dec 31, 2011

Dec 31, 2010

1

Active Book Equity adjusted for unrealized net gains (losses) on financial assets available for sale, net of applicable tax, and fair value gains on own credit-effect on own liabilities.

2

Includes fair value adjustments for assets reclassified in accordance with IAS 39 and for banking book assets where no matched funding is available.

3

Includes noncontrolling interest up to the economic capital requirement for each subsidiary.

4

Tier 2 capital instruments excluding items to be partly deducted from Tier 2 capital pursuant to Section 10 (6) and (6a) KWG, unrealized gains on listed securities (45 % eligible) and certain haircut-amounts that only apply under regulatory capital assessment.

Capital Supply

 

 

Adjusted Active Book Equity1

52,818

48,304

Deferred Tax Assets

(8,737)

(8,341)

Fair Value adjustments2

(3,323)

(3,612)

Dividend accruals

697

697

Noncontrolling Interests3

694

590

Hybrid Tier 1 capital instruments

12,734

12,593

Tier 2 capital instruments4

12,044

12,610

Capital Supply

66,927

62,841

 

 

 

Capital Demand

 

 

Economic Capital Requirement

26,377

27,178

Intangibles

15,802

15,594

Capital Demand

42,179

42,772

 

 

 

Internal Capital Adequacy Ratio

159 %

147 %

A ratio of more than 100 % signifies that the total capital supply is sufficient to cover the capital demand determined by the risk positions. This ratio was 159 % as of December 31, 2011, compared to 147 % as of December 31, 2010. This increase was driven by higher adjusted active book equity and the decrease in capital demand as explained in the above section “Overall Risk Position”, which both developed in favor of the ratio.

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Deutsche Bank Annual Report 2011

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