Since 2008, we have calculated and published consolidated capital ratios for the Deutsche Bank group of institutions pursuant to the German Banking Act and the German Solvency Regulation, which implemented the revised capital framework of the Basel Committee from 2004 (“Basel 2”) into German law. Starting with December 31, 2011, the calculation of our capital ratios incorporated the amended capital requirements for trading book and securitization positions pursuant to the “Basel 2.5” framework, as implemented into German law by the German Banking Act and the German Solvency Regulation, representing the legal basis for our capital adequacy calculations also as of December 31, 2013.
As stated earlier in this report, in the European Union, the new Basel 3 capital framework has been implemented by the Capital Requirements Regulation (“CRR”) and the Capital Requirements Directive 4 (“CRD 4”) published on June 27, 2013. They represent inter alia the new regulatory framework regarding regulatory capital. The new regulatory capital framework is applied on January 1, 2014 while capital buffers will be phased-in from 2016 onwards. For purposes of clarity in our disclosures, we use the nomenclature from the CRR/CRD 4 framework in the following sections and tables on capital adequacy and regulatory capital. Nevertheless, amounts disclosed for the periods under review in this report are based on the Basel 2.5 framework as implemented into German law and as still in effect for these periods, unless stated otherwise.
This section refers to the capital adequacy of the group of institutions consolidated for banking regulatory purposes pursuant to the German Banking Act. Thereunder not included are insurance companies or companies outside the finance sector. Our insurance companies are included in an additional capital adequacy (also “solvency margin”) calculation under the German Solvency Regulation for Financial Conglomerates. Our solvency margin as a financial conglomerate remains dominated by our banking activities.
In light of the regulations given above the following information are based on the banking regulatory principles of consolidation.
The total regulatory capital pursuant to the effective regulations as of year-end 2013 consisted of Tier 1, Tier 2 and Tier 3 capital. Tier 1 capital consisted of Common Equity Tier 1 capital (formerly referred to as Core Tier 1 capital) and Additional Tier 1 capital.
Common Equity Tier 1 capital consisted primarily of common share capital including related share premium accounts, retained earnings and other comprehensive income, subject to regulatory adjustments. Regulatory adjustments entailed the exclusion of capital from entities outside the group of institutions and the reversal of capital effects under the fair value option on financial liabilities due to own credit risk. They also included deduction of goodwill and other intangible assets as well as the following items that must be deducted half from Tier 1 and half from Tier 2 capital: (i) investments in unconsolidated banking, financial and insurance entities where a bank holds more than 10 % of the capital (in case of insurance entities at least 20 % either of the capital or of the voting rights unless included in the solvency margin calculation of the financial conglomerate), (ii) the amount by which the expected loss for exposures to central governments, institutions and corporate and retail clients as measured under the bank’s internal ratings based approach (“IRBA”) model exceeds the value adjustments and provisions for such exposures, (iii) the expected losses for certain equity exposures, securitization positions not included in the risk-weighted assets and (iv) the value of securities delivered to a counterparty plus any replacement cost to the extent the required payments by the counterparty have not been made within five business days after delivery provided the transaction has been allocated to the bank’s trading book.
Additional Tier 1 capital consisted of hybrid capital components such as noncumulative trust preferred securities. Depending on the quality, the amount of hybrid capital instruments was subject to certain limits. Generally, hybrid Tier 1 capital instruments that must be converted during emergency situations and may be converted at the initiative of the competent authority, at any time, were limited to 50 % of Common Equity Tier 1. Within this limit, all other hybrid Tier 1 capital instruments were limited to 35 % of Common Equity Tier 1. Finally, within the two aforementioned limits, dated hybrid Tier 1 capital instruments and instruments with provisions that provide for an incentive to redeem must not exceed a maximum of 15 % of Common Equity Tier 1.
Tier 2 capital primarily comprised cumulative trust preferred securities, certain profit participation rights and long-term subordinated debt, as well as 45 % of unrealized gains on certain listed securities. The amount of long-term subordinated debt that may be included as Tier 2 capital was limited to 50 % of Tier 1 capital. Total Tier 2 capital was limited to 100 % of Tier 1 capital.