Regulatory Capital Requirements


Under the Basel framework, overall capital requirements have to be calculated and compared with the regulatory capital described above. The overall capital requirements are frequently expressed in risk-weighted asset terms whereby total capital requirements are 8 % of risk-weighted assets. The information presented below is based on the regulatory principles of consolidation.

Since December 31, 2011, the calculation of our RWAs and capital ratios has incorporated the amended capital requirements for trading book and securitization positions pursuant to the “Basel 2.5” framework, as implemented by the Capital Requirements Directive 3 and transposed into German law by the German Banking Act and the Solvency Regulation.

The Basel 2.5 framework introduced the model based risk measures stressed value-at-risk, incremental risk charge and comprehensive risk within market risk for banks applying an internal model approach:

  • Stressed Value-at-Risk: calculates a stressed value-at-risk measure based on a continuous one year period of significant market stress.
  • Incremental Risk Charge (“IRC”): captures default and migration risks in addition to the risks already captured in value-at-risk for credit-sensitive positions in the trading book.
  • Comprehensive Risk Measure (“CRM”): captures incremental risk for the credit correlation trading portfolio calculated using an internal model subject to qualitative minimum requirements as well as stress testing requirements. The CRM must be calculated weekly and is determined as the higher of the latest weekly CRM charge from the model, the twelve weeks average CRM charge, and the MRSA charge for the credit correlation portfolio, the so-called CRM Floor.

In addition, Basel 2.5 regulations require as part of the market risk capital charge the calculation of the specific market risk of securitization trading positions and nth-to-default credit derivatives, which are not eligible for the comprehensive risk measure, based on the market risk standardized approach.

Against this background, we calculate our RWA based on the following approaches:

In December 2007 the BaFin approved the use of the advanced IRBA for the majority of our counterparty credit risk positions which excludes the exposures consolidated from Postbank. Additional advanced IRBA-related BaFin approvals have been obtained during the period 2008 to 2012. The advanced IRBA constitutes the most sophisticated approach available under the Basel regime. Postbank has BaFin approval for the IRBA to be applied to the retail business, which is assigned to the advanced IRBA for consolidation on Group level, and the foundation IRBA for a significant portion of the other counterparty credit risk exposures.

The remaining IRBA eligible exposures are covered within the standardized approach either temporarily (where we are seeking regulatory approval for some remaining small portfolios) or permanently (where exposures are treated under the standardized approach in accordance with Section 70 SolvV). More details on this topic are provided in the Section “Counterparty Credit Risk: Regulatory Assessment”.

The capital requirement for securitization positions is calculated substantially using the IRBA approach; only minor exposures are captured under the standardized approach. The introduction of Basel 2.5 requires identifying re-securitization positions in the banking and trading book which receive an increased risk-weighting and result in higher capital charges for credit risk and market risk, respectively. More details on the treatment of securitization positions can be found in the Section “Securitization”.

For equity investments entered into before January 1, 2008, we use the transitional arrangement to exempt these positions from an IRBA treatment and apply the grandfathering rule, using a 100 % risk weighting. For investments in equity positions entered into since January 1, 2008, we apply the simple risk weight approach within the IRBA for our exposures. For more details regarding equity investments please refer to the Sections “Nontrading Market Risk – Investment Risk” and “Nontrading Market Risk – Equity Investments Held”.

The calculation of regulatory market risk capital requirements is generally based on an internal value-at-risk model, which was approved by the BaFin in October 1998 for our market risk exposures. In December 2011 we received model approvals from BaFin for the stressed value-at-risk, incremental risk charge and comprehensive risk measure. Our regulatory capital calculation for the specific interest rate risk of trading book securitizations and nth-to-default credit derivatives which are not eligible for the comprehensive risk measure is based on the market risk standardized approach. Further market risk positions covered under the standardized approach include for example exposures in relation to Postbank. More details on the aforementioned internal models are provided in the Section “Trading Market Risk”.

In December 2007, we obtained approval to apply the advanced measurement approach (“AMA”) to determine our regulatory operational risk capital requirements, the approval does not apply to Postbank. Details on the respective AMA model are given in the Section “Operational Risk”. As of December 31, 2010, Postbank also obtained the approval to apply the advanced measurement approach. Capital requirements for operational risk are still displayed for the Group excluding Postbank, and separately for Postbank as we are waiting for regulatory approval to integrate Postbank into our regulatory capital calculation.

Risk-weighted Assets by Model Approach and Business Division

 

Dec 31, 2012

in € m.

Corporate Banking & Securities

Global Transaction Bank

Asset & Wealth Management

Private & Business Clients

Non-Core Operations Unit

Consolidation & Adjustments and Other

Total

Credit Risk

70,590

26,398

6,134

67,511

40,329

18,235

229,196

Advanced IRBA

63,727

18,464

2,823

38,637

19,501

573

143,725

Central Governments

2,440

818

11

76

266

151

3,762

Institutions

5,686

1,607

93

200

1,333

27

8,946

Corporates

49,258

15,610

2,589

2,796

10,999

395

81,646

Retail

217

20

130

34,529

1,150

0

36,046

Other

6,125

409

1

1,037

5,753

0

13,325

Foundation IRBA

8,726

1,813

10,539

Central Governments

32

2

35

Institutions

2,217

939

3,156

Corporates

6,477

872

7,349

Retail

Other

0

Other IRBA

2,487

261

455

9,042

8,027

2,321

22,592

Central Governments

Institutions

Corporates

1,341

240

5,574

3,802

10,957

Retail

Other

1,146

20

455

3,467

4,225

2,321

11,635

Standardized Approach

4,376

7,673

2,856

11,105

10,988

15,340

52,340

Central Governments

2

68

0

87

222

1

379

Institutions

13

16

9

112

77

3

230

Corporates

3,070

7,125

1,038

2,733

4,273

401

18,640

Retail

16

392

134

5,991

2,758

1

9,292

Other

1,275

73

1,675

2,183

3,658

14,935

23,799

Market Risk

35,656

365

1,166

360

15,512

53,058

Internal Model Approach

31,280

365

1,166

13,761

46,571

Standardized Approach

4,376

360

1,751

6,487

Operational Risk

19,221

331

4,904

4,530

22,609

51,595

Advanced measurement approach

19,221

331

4,904

4,530

22,609

51,595

Total

124,939

27,093

12,451

72,695

80,295

16,377

333,849

Within credit risk, the line item “Other” in Advanced IRBA predominately reflects RWA from securitization positions in the banking book. The Other IRBA mainly contains equity positions as well as non-credit obligation assets in the category “Other”. Within the Standardized Approach, about half of the line item “Other” includes RWAs from banking book securitizations with the remainder being exposures assigned to the further exposure classes in the Standardized Approach apart from central governments, institutions, corporate and retail.

Regulatory Capital Requirements and Risk-weighted Assets

 

Dec 31, 2012

Dec 31, 2011

in € m.

Capital requirements

RWA

Capital requirements

RWA

Counterparty credit risk

 

 

 

 

Advanced IRBA

 

 

 

 

Central governments

301

3,762

207

2,586

Institutions

716

8,946

1,018

12,727

Corporates

6,532

81,646

8,049

100,609

Retail (excluding Postbank)

1,727

21,583

1,718

21,480

Retail (Postbank)

1,157

14,462

912

11,405

Other non-credit obligation assets

343

4,283

1,144

14,304

Total advanced IRBA

10,775

134,683

13,049

163,112

Foundation approach

 

 

 

 

Central governments

3

35

3

37

Institutions

252

3,156

323

4,044

Corporates

1,465

18,306

1,391

17,382

Other non-credit obligation assets

152

1,897

228

2,850

Total foundation approach

1,872

23,394

1,945

24,312

Standardized approach

 

 

 

 

Central governments

0

1

1

15

Regional governments and local authorities

4

55

8

100

Other public sector entities

26

323

52

654

Multilateral development banks

International organizations

Institutions

18

230

47

583

Covered bonds issued by credit institutions

1

8

8

98

Corporates

1,491

18,640

1,840

22,998

Retail

525

6,564

882

11,029

Claims secured by real estate property

218

2,728

252

3,152

Collective investment undertakings

196

2,444

220

2,755

Other items

1,176

14,702

8

94

Past due items

130

1,625

156

1,944

Total standardized approach

3,786

47,320

3,474

43,424

Risk from securitization positions

 

 

 

 

Securitizations (IRBA)

1,066

13,325

1,340

16,753

Securitizations (standardized approach)

117

1,457

157

1,961

Total risk from securitization positions

1,183

14,782

1,497

18,714

Risk from equity positions

 

 

 

 

Equity positions (grandfathered)

281

3,517

282

3,522

Equity positions (IRBA simple risk-weight approach)

436

5,455

760

9,503

Exchange-traded

51

632

81

1,016

Non-exchange-traded

369

4,616

647

8,088

Non-exchange-traded but sufficiently diversified

17

207

32

399

Total risk from equity positions

718

8,971

1,042

13,024

Settlement risk

4

46

14

178

Total counterparty credit risk

18,336

229,196

21,021

262,764

Market risk in the trading book

 

 

 

 

Internal model approach

3,726

46,571

4,819

60,241

VaR

761

9,510

972

12,150

Stressed VaR

1,641

20,518

2,151

26,892

Incremental Risk Charge

761

9,509

758

9,475

Comprehensive Risk Measurement (Correlation Trading)

563

7,035

938

11,724

Standardized approach

519

6,487

628

7,854

Interest rate risk – Non-Securitization

2

26

142

1,780

Interest rate risk – Securitization and nth-to-default derivatives

443

5,533

399

4,986

Equity risk

FX risk

42

524

55

688

Commodity risk

Other market risk

32

404

32

401

Total market risk in the trading book

4,245

53,058

5,448

68,095

Operational risk

 

 

 

 

Advanced measurement approach (excluding Postbank)

3,866

48,325

3,772

47,148

Advanced measurement approach (Postbank)

262

3,270

284

3,547

Total operational risk

4,128

51,595

4,056

50,695

Total regulatory capital requirements and RWA

26,708

333,849

30,524

381,554

The table below provides an analysis of key drivers for RWA movements on a Basel 2.5 basis observed for credit and market risk in the reporting period.

Development of Risk-weighted Assets for Credit Risk and Market Risk

 

Dec 31, 2012

in € m.

Counterparty credit risk

thereof: derivatives and repo-style transactions

Credit risk RWA balance, beginning of year

262,764

50,973

Book Quality/Growth

3,400

3,283

Operating Model Improvements

(13,534)

(12,800)

Advanced Model Roll out

(7,325)

(4,180)

Asset Sale/Hedging

(14,470)

(1,567)

Foreign exchange movements

(1,639)

(436)

Credit risk RWA balance, end of year

229,196

35,274

in € m.

 

Dec 31, 2012

Market risk RWA balance, beginning of year

 

68,095

Movement in risk levels

 

(322)

Market data changes and recalibrations

 

(2,577)

Model updates

 

(707)

Methodology and policy

 

(11,215)

Acquisitions and disposals

 

Foreign exchange movements

 

(216)

Market risk RWA balance, end of year

 

53,058

The decrease in RWA for counterparty credit risk by 13 % since December 31, 2011 mainly reflects the successful RWA reduction efforts focusing on de-risking as well as model and process enhancements.

The category Asset Sale/Hedging mainly includes de-risking activities through disposals, restructuring and additional hedging. Regular process and data enhancements including further migration of derivatives into the internal model method as well as continuing usage of master netting and collateral agreements are considered in the category Operating Model improvements. The Advanced Model Roll-out category primarily shows the impact from BaFin approvals received for certain advanced IRBA models which we continued to roll out in light of the German regulatory requirement to achieve an IRBA coverage ratio of 92 % on an EAD- and RWA-basis by December 31, 2012. The category Book Quality/Growth includes organic changes in the book size as well as the effects from portfolio rating migrations.

The analysis for market risk covers movements in our internal models for value-at-risk, stressed value-at-risk, incremental risk charge and comprehensive risk measure as well as results from the market risk standardized approach, e.g. for trading securitizations and nth-to-default derivatives or trading exposures for Postbank.

The 22 % RWA decrease for market risk since December 31, 2011 is mainly due to the significant reduction of our BaFin-defined, internal model multiplier from 5.5 to 4.0 for value-at-risk and stressed value-at-risk resulting from model enhancements and process improvements. The impact is reflected exclusively in the “Methodology and policy” category which provides regulatory-driven changes to our market risk RWA models. The market risk RWA movements due to changes in market data levels, volatilities, correlations, liquidity and ratings are included under the market data changes category. In 2012 we saw a benefit in market risk RWA due to lower levels of volatility within the historical market data used in the calculation. Changes to our market risk RWA internal models, such as methodology enhancements or risk scope extensions, are included in the category of “Model updates”. Further details on the market risk methodologies and their refinements are provided in the section “Trading Market Risk – Market Risk Measurement”. Market risk RWA movements in Risk levels are interpreted as organic changes in portfolio size and composition resulting from the normal course of business. In this category we also consider re-allocations between the regulatory trading and banking book which occur in rare cases. Significant new businesses and disposals would be assigned to the line item Acquisition and disposal, which was not applicable in this reporting period.