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.

Overall risk position as measured by economic capital usage

 

 

 

2013 increase (decrease)
from 2012

in € m.

Dec 31, 2013

Dec 31, 2012

in € m.

in %

Credit risk

12,013

12,574

(561)

(4)

Market Risk

12,738

13,185

(447)

(3)

Trading market risk

4,197

4,690

(493)

(11)

Nontrading market risk

8,541

8,495

46

1

Operational risk

5,253

5,018

235

5

Diversification benefit across credit, market and operational risk

(4,515)

(4,435)

(80)

2

Sub-total credit, market and operational risk

25,489

26,342

(853)

(3)

Business risk

1,682

2,399

(718)

(30)

Total economic capital usage

27,171

28,741

(1,570)

(5)

As of December 31, 2013, our economic capital usage totaled € 27.2 billion, which is € 1.6 billion, or 5 %, below the € 28.7 billion economic capital usage as of December 31, 2012. The lower overall risk position mainly reflected de-risking activities which were partially offset by methodology updated across risk types.

The economic capital usage as of December 31, 2013 included € 4.3 billion in relation to Postbank, which is € 1.0 billion, or 19 % lower than the € 5.3 billion economic capital usage as of December 31, 2012. The decrease was largely driven by de-risking activities of credit spread risk exposure of Postbank’s banking book, partially offset by increased economic capital usage for operational risk.

Our economic capital usage for credit risk totaled € 12.0 billion as of December 31, 2013. The decrease of € 561 million, or 4 %, mainly reflected process enhancements and reduced exposures, primarily in NCOU, partially offset by increases from the internal model recalibration.

The economic capital usage for market risk decreased by € 447 million, or 3 %, to € 12.7 billion as of December 31, 2013 and was driven by € 493 million, or 11 %, lower trading market risk. The decrease was primarily driven by reductions from within NCOU. The nontrading market risk economic capital usage increased by € 46 million, or 1 %, largely driven by the implementation of a more conservative methodology for structural foreign exchange risk and pension risk with regards to applied liquidity horizon and treatment of longevity risk offset by a substantial decrease in exposures for banking books with material credit spread risk.

The economic capital usage for operational risk increased to € 5.3 billion as of December 31, 2013, compared with € 5.0 billion at year-end 2012. This is mainly driven by the implementation of a change in our AMA Model to better estimate the frequency of Deutsche Bank specific operational risk losses. The change led to an increased economic capital usage of € 191 million. An additional driver was the increased operational risk loss profile of Deutsche Bank as well as that of the industry as a whole. The related operational risk losses that have materialized and give rise to the increased economic capital usage are largely due to the outflows related to litigation, investigations and enforcement actions. The economic capital continues to include the safety margin applied in our AMA Model, which was implemented in 2011 to cover unforeseen legal risks from the recent financial crisis.

Our business risk economic capital methodology captures strategic risk, which also implicitly includes elements of refinancing and reputational risk, and a tax risk component. The business risk economic capital usage totaled € 1.7 billion as of December 31, 2013, which is € 718 million or 30 % lower than the € 2.4 billion economic capital usage as of December 31, 2012. The decrease was driven by a lower economic capital usage for the strategic risk component as a result of a more optimistic business plan for 2014 compared to the business plan for 2013.

The diversification effect of the economic capital usage across credit, market and operational risk increased by € 80 million, or 2 %, as of December 31, 2013, mainly reflecting effects from regular model recalibration.

Internal Capital Adequacy Assessment Process

The lnternal Capital Adequacy Assessment Process (“ICAAP”) requires banks to identify and assess risks, maintain sufficient capital to face these risks and apply appropriate risk-management techniques to maintain adequate capitalization on an ongoing and forward looking basis, i.e., internal capital supply to exceed internal capital demand (figures are described in more detail in the section “Internal Capital Adequacy”).

We, at a Group level, maintain compliance with the lCAAP as required under Pillar 2 of Basel 2 and its local implementation in Germany, the Minimum Requirements for Risk Management (MaRisk), through a Group-wide risk management and governance framework, methodologies, processes and infrastructure.

In line with MaRisk and Basel requirements, the key instruments to help us maintain our adequate capitalization on an ongoing and forward looking basis are:

  • A strategic planning process which aligns risk strategy and appetite with commercial objectives;
  • A continuous monitoring process against approved risk and capital targets set;
  • Frequent risk and capital reporting to management; and
  • An economic capital and stress testing framework which also includes specific stress tests to underpin our recovery monitoring processes.

More information on risk management organized by major risk category can be found in section “Risk Management Principles – Risk Governance”.

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. In 2013 our capital supply definition was aligned with the CRR/CRD 4 capital framework by discontinuing the adjustment for unrealized gains/losses on cash flow hedges and inclusion of the debt valuation adjustments. The prior year information has been changed accordingly.

Internal Capital Adequacy

in € m.
(unless stated otherwise)

Dec 31, 2013

Dec 31, 2012

1

Includes deduction of fair value gains on own credit-effect relating to own liabilities designated under the fair value option as well as the debt valuation adjustments.

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

 

 

Shareholders' Equity

54,719

54,001

Fair value gains on own debt and debt valuation adjustments, subject to own credit risk1

(537)

(569)

Deferred Tax Assets

(7,071)

(7,712)

Fair Value adjustments for financial assets reclassified to loans2

(363)

(1,991)

Noncontrolling Interests3

0

0

Hybrid Tier 1 capital instruments

12,182

12,526

Tier 2 capital instruments4

9,689

11,646

Capital Supply

68,619

67,901

 

 

 

Capital Demand

 

 

Economic Capital Requirement

27,171

28,741

Intangible Assets

13,932

14,219

Capital Demand

41,103

42,960

 

 

 

Internal Capital Adequacy Ratio

167 %

158 %

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 167 % as of December 31, 2013, compared with 158 % as of December 31, 2012. The increase in capital supply, driven by higher shareholders’ equity and reduced deduction items as well as the decrease in the observed capital demand determined the development in favor of the ratio. The shareholders’ equity increase by € 718 million mainly reflected the capital increase in the second quarter partially offset by foreign currency translation effects. The Fair Value adjustments for financial assets reclassified to loans decreased by € 1.6 billion, reflecting mainly de-risking activities and consolidation of special purpose vehicles under IFRS 10. The decrease in capital demand was driven by lower economic capital requirement, explained in the section “Overall Risk Position”, which was further supported by the impairments of goodwill and other intangible assets in the fourth quarter 2013.

The above capital adequacy measures apply for the consolidated Group as a whole (including Postbank) and form an integral part of our Risk and Capital Management framework, further described in the other sections of this report.