Financial Instruments carried at Fair Value

 (unaudited)

The financial instruments carried at fair value have been categorized under the three levels of the IFRS fair value hierarchy as follows:

Level 1 – Instruments valued using quoted prices in active markets: These are instruments where the fair value can be determined directly from prices which are quoted in active, liquid markets and where the instrument observed in the market is representative of that being priced in the Group’s inventory.

These instruments include: highly liquid treasury securities and derivative, equity and cash products traded on high-liquidity exchanges.

Level 2 – Instruments valued with valuation techniques using observable market data: These are instruments where the fair value can be determined by reference to similar instruments trading in active markets, or where a technique is used to derive the valuation but where all inputs to that technique are observable.

These instruments include: many OTC (over the counter) derivatives; many investment-grade listed credit bonds; some CDSs (credit default swaps); many CDOs (collateralized debt obligations); and many less-liquid equities.

Level 3 – Instruments valued using valuation techniques using market data which is not directly observable: These are instruments where the fair value cannot be determined directly by reference to market-observable information, and some other pricing technique must be employed. Instruments classified in this category have an element which is unobservable and which has a significant impact on the fair value.

These instruments include: more-complex OTC derivatives; distressed debt; highly-structured bonds; illiquid ABS (asset-backed securities, including some referencing residential mortgages); illiquid CDOs (cash and synthetic); monoline exposures; private equity placements; many CRE (commercial real-estate) loans; illiquid loans; and some municipal bonds.

The following table presents the carrying value of the financial instruments held at fair value across the three levels of the fair value hierarchy. Amounts in the table are generally presented on a gross basis, in line with the Group’s accounting policy regarding offsetting of financial instruments, as described in Note 01 “Significant Accounting Policies” of the Financial Report 2010.

 

Jun 30, 2011

Dec 31, 2010

in € m.

Quoted prices in active market (Level 1)

Valuation technique observable parameters (Level 2)

Valuation technique unobservable parameters (Level 3)

Quoted prices in active market (Level 1)

Valuation technique observable parameters (Level 2)

Valuation technique unobservable parameters (Level 3)

1

Predominantly relates to derivatives held for trading purposes. Also includes derivatives designated in hedging relationships and derivatives which are embedded in contracts where the host contract is not held at fair value through profit or loss. These were classified as “Other financial assets/liabilities at fair value” in Note 14 “Financial Instruments carried at Fair Value” of the Financial Report 2010.

2

These are investment contracts where the policy terms and conditions result in their redemption value equaling fair value. See Note 39 “Insurance and Investment Contracts” of the Financial Report 2010 for more detail on these contracts.

Financial assets held at fair value:

 

 

 

 

 

 

Trading assets

107,992

162,795

18,836

97,520

152,843

20,928

Positive market values from derivative financial instruments1

13,889

531,057

18,127

14,976

633,465

17,220

Financial assets designated at fair value through profit or loss

9,582

166,412

4,768

7,674

160,966

3,286

Financial assets available for sale

12,638

32,062

3,790

17,186

31,858

5,222

Total financial assets held at fair value

144,101

892,326

45,521

137,356

979,132

46,656

Financial liabilities held at fair value:

 

 

 

 

 

 

Trading liabilities

44,090

25,128

171

43,968

24,635

256

Negative market values from derivative financial instruments1

11,733

526,994

9,800

12,379

630,402

10,677

Financial liabilities designated at fair value through profit or loss

81

112,820

1,895

348

127,736

2,070

Investment contract liabilities2

7,269

7,898

Total financial liabilities held at fair value

55,904

672,211

11,866

56,695

790,671

13,003

Total Level 3 assets decreased during the six months ended June 30, 2011. The decrease in Trading assets is mainly attributable to transfers of Trading assets from Level 3 to Level 2 due to improved observability of input parameters. The increase in Positive market values from derivative financial instruments is mainly attributable to transfers from Level 2 into Level 3 due to decreased observability of input parameters and illiquidity. The increase in Financial assets designated at fair value through profit or loss is mainly due to new loans. The reduction in Available for sale assets during the period is mainly due to sales.

Total Level 3 liabilities decreased during the six months ended June 30, 2011. The decrease is mainly attributable to transfers of derivative liabilities from Level 3 to Level 2 due to improved observability of parameter inputs used to value these liabilities and settlements during the period.

There have been no significant transfers of instruments between Level 1 and Level 2 of the fair value hierarchy during the period.

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