Risk Report


Introduction

Disclosures in line with IFRS 7 and IAS 1

The following Risk Report provides qualitative and quantitative disclosures about credit, market and other risks in line with the requirements of International Financial Reporting Standard 7 (IFRS 7) Financial Instruments: Disclosures, and capital disclosures required by International Accounting Standard 1 (IAS 1) Presentation of Financial Statements. Information which forms part of and is incorporated by reference into the financial statements of this report is marked by a bracket in the margins throughout this Risk Report.

Disclosures according to Pillar 3 of the Basel Capital Framework

In previous years (since 2008), the Pillar 3 disclosures had been provided in separate Pillar 3 Reports. Starting with year-end 2012, the risk report also incorporates the Pillar 3 disclosures resulting from the revised international capital adequacy standards as recommended by the Basel Committee on Banking Supervision (Basel 2), including the amendments for trading book and securitization positions as applicable since December 31, 2011 (Basel 2.5). The European Union enacted the Capital Requirements Directive 3, which adopted the Basel 2.5 capital framework in Europe. Germany adopted the Capital Requirements Directive 3 into national law and revised the disclosure requirements related to Pillar 3 in Section 26a of the German Banking Act (“Kreditwesengesetz” or “KWG”) and in Part 5 of the German Regulation on Solvency (“Solvabilitätsverordnung”, “Solvency Regulation” or “SolvV”).

Per regulation it is not required to audit Pillar 3 disclosures. As such certain Pillar 3 disclosures are labeled unaudited.

We have applied the revised capital framework for the majority of our risk exposures on the basis of internal models for measuring credit risk, market risk and operational risk, as approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, referred to as “BaFin”). All Pillar 3 relevant disclosures are compiled based upon a set of internally defined principles and related processes as stipulated in our applicable Pillar 3 disclosure policy.

The following table provides the location of the Pillar 3 disclosure topics in this Risk Report.

Pillar 3 disclosures in our Financial Report

Pillar 3 Disclosure topic

Where to find in our Financial Report

Introduction and Scope of Application of Pillar 3

“Introduction“

Capital Adequacy

“Regulatory Capital”

Risk and Capital Management of the Group

“Risk Management Executive Summary”, “Risk Management Principles”, “Risk Strategy and Appetite”, “Risk Inventory”, “Risk Management Tools”, “Capital Management”, “Balance Sheet Management” and “Overall Risk Position”

Counterparty Credit Risk: Strategy and Processes Counterparty Credit Risk: Regulatory Assessment

“Credit Risk”, “Asset Quality”, “Counterparty Credit Risk: Regulatory Assessment” and Note 01 “Significant Accounting Policies”

Securitization

“Securitization” and Note 01 “Significant Accounting Policies”

Trading Market Risk Nontrading Market Risk

“Trading Market Risk”, “Nontrading Market Risk”, “Accounting and Valuation of Equity Investments” and Note 02 “Critical Accounting Estimates – Methods of Determining Fair Value”

Operational Risk

“Operational Risk”

Liquidity Risk

“Liquidity Risk”

Disclosures according to principles and recommendations of the Enhanced Disclosure Task Force (EDTF)

In 2012 the Enhanced Disclosure Task Force (“EDTF”) was established as a private sector initiative under the auspice of the Financial Stability Board, with the primary objective to develop fundamental principles for enhanced risk disclosures and to recommend improvements to existing risk disclosures. As a member of the EDTF we implemented many of the disclosure recommendations in this Risk Report, with further enhancements being considered for 2013.

General Approach

The sections on qualitative and quantitative risk disclosures provide a comprehensive view on the risk profile of Deutsche Bank Group. All quantitative information generally reflects Deutsche Bank Group including Postbank for the reporting dates December 31, 2012 and December 31, 2011.

With the legally enforceable domination agreement between Deutsche Bank and Postbank in place since September 2012, Postbank´s risk management function has been functionally integrated in our risk function, e.g., regarding functional reporting lines, joint committee structure and group-wide policies. Statements regarding risk management hence always refer to the Group including Postbank. In limited instances where differing approaches remain or where a consolidated view for quantitative information cannot be presented, this is separately highlighted.

Scope of Consolidation

The following sections providing quantitative information refer to our financial statements in accordance with International Financial Reporting Standards. Consequently, the reporting is generally based on the IFRS principles of valuation and consolidation. However, in particular for Pillar 3 purposes, regulatory principles of consolidation are relevant which differ from those applied for our financial statements and are described in more detail below. Where the regulatorily relevant scope is used this is explicitly stated.

Scope of the Regulatory Consolidation

Deutsche Bank Aktiengesellschaft (“Deutsche Bank AG”), headquartered in Frankfurt am Main, Germany, is the parent institution of the Deutsche Bank group of institutions (the “regulatory group”), which is subject to the supervisory provisions of the KWG and the SolvV. Under Section 10a KWG, a regulatory group of institutions consists of a credit institution (also referred to as a “bank”) or financial services institution, as the parent company, and all other banks, financial services institutions, investment management companies, financial enterprises, payment institutions and ancillary services enterprises which are subsidiaries in the meaning of Section 1 (7) KWG. Such entities are fully consolidated for our regulatory reporting. Additionally certain companies which are not subsidiaries can be included on a pro-rata basis. Insurance companies and companies outside the finance sector are not consolidated in the regulatory group of institutions.

For financial conglomerates, however, insurance companies are included in an additional capital adequacy calculation (also referred to as “solvency margin”). We have been designated by the BaFin as a financial conglomerate in October 2007.

The regulatory principles of consolidation are not identical to those applied for our financial statements. Nonetheless, the majority of subsidiaries according to the KWG are also fully consolidated in accordance with IFRS in our consolidated financial statements.

The main differences between regulatory and accounting consolidation are:

  • Entities which are controlled by us but do not belong to the banking industry, do not form part of the regulatory group of institutions, however are included in the consolidated financial statements according to IFRS.
  • Most of our Special Purpose Entities (“SPEs”) consolidated under IFRS do not meet the specific consolidation requirements pursuant to Section 10a KWG and are consequently not consolidated within the regulatory group. However, the risks resulting from our exposures to such entities are reflected in the regulatory capital requirements.
  • Some entities included in the regulatory group are not consolidated for accounting purposes but are treated differently, in particular using the equity method of accounting. There are two entities within our regulatory group which are jointly controlled by its owners and consolidated on a pro-rata basis. One entity is voluntarily consolidated on a pro-rata basis. All three entities are treated according to the equity method of accounting in our financial statements.

As of year-end 2012, our regulatory group comprised 913 subsidiaries, of which 3 were consolidated on a pro-rata basis. Our regulatory group comprised 137 credit institutions, 3 payment institutions, 80 financial services institutions, 514 financial enterprises, 14 investment management companies and 165 ancillary services enterprises.

As of year-end 2011, our regulatory group comprised 1,027 subsidiaries, of which 3 were consolidated on a pro-rata basis. The regulatory group comprised 152 credit institutions, 2 payment institutions, 93 financial services institutions, 627 financial enterprises, 14 investment management companies and 139 ancillary services enterprises.

131 entities were exempted from regulatory consolidation pursuant to Section 31 (3) KWG as per year end 2012 (year end 2011: 102 entities). Section 31 (3) KWG allows the exclusion of small entities in the regulatory scope of application from consolidated regulatory reporting if either their total assets are below € 10 million or below 1 % of total assets. None of these entities need to be consolidated in our financial statements in accordance with IFRS. The book values of our participations in their equity were deducted from our regulatory capital, in total € 31 million as per year end 2012 (year end 2011: €12 million).

The same deduction treatment was applied to a further 267 unconsolidated (in the meaning of regulatory consolidation) entities and three immaterial insurance entities, not included in the solvency margin, which we deducted from our regulatory capital pursuant to Section 10 (6) KWG. Section 10 (6) No. 1, 2, 3 and 5 KWG requires the deduction of participating interests in unconsolidated banking, financial and insurance entities from regulatory capital when more than 10 % of the capital is held (in case of insurance entities, 20 % of either the capital or voting rights unless included in the solvency margin calculation of the financial conglomerate). Since we are classified as a financial conglomerate, material investments in insurance entities amounting to at least 20 % of capital or voting rights are not deducted from our regulatory capital as they are included in our solvency calculation at the financial conglomerate level.

Key figures comparison

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