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, 2012, 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 2013. The advanced IRBA constitutes the most sophisticated approach available under the Basel regime. Postbank has BaFin approval for the advanced IRBA to be applied to the retail business and certain exposures in the exposure classes “institutions” and “corporate”, and the foundation IRBA for a 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 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, longevity risk and certain types of investment funds. 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. On May 15, 2013 BaFin approved the integration of Postbank into our regulatory capital calculation, which has been reflected since second quarter of 2013.

Development of Risk-weighted Assets

The tables below provide an overview of risk-weighted assets on a Basel 2.5 basis broken down by model approach and business division. They include the aggregated effects of the segmental reallocation of infrastructure related positions if applicable as well as reallocations between the segments but exclude the transitional adjustment according to section 64h (3) of the German Banking Act. The comparison period has been adjusted accordingly. Based on a respective BaFin approval in the second quarter 2013, Postbank has been integrated in the Group’s advanced measurement approach to determine RWA for operational risk.

Risk-weighted Assets by Model Approach and Business Division

 

Dec 31, 2013

in € m.

Corporate Banking & Securities1

Global Transaction Banking1

Deutsche Asset & Wealth Management

Private & Business Clients

Non-Core Operations Unit

Consolidation & Adjustments and Other

Total

1

The increase in risk-weighted assets in Global Transaction Banking is primarily due to changes in the organizational structure in the third quarter of 2013, resulting in a respective decrease in Corporate Banking & Securities.

Credit Risk

61,619

35,418

5,809

65,909

22,632

10,832

202,219

Segment reallocation

(658)

1,912

259

553

86

(2,152)

0

Advanced IRBA

55,745

26,140

2,589

42,651

11,957

813

139,894

Central Governments

2,927

896

5

90

253

181

4,353

Institutions

5,438

1,921

80

803

922

12

9,175

Corporates

43,075

22,378

2,398

5,638

7,288

620

81,397

Retail

124

33

106

35,844

1,027

0

37,134

Other

4,181

911

0

276

2,466

0

7,834

Foundation IRBA

0

0

0

5,937

264

0

6,202

Central Governments

0

0

0

0

2

0

2

Institutions

0

0

0

1,059

261

0

1,320

Corporates

0

0

0

4,879

1

0

4,880

Retail

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Other IRBA

2,596

87

440

8,046

2,897

2,424

16,490

Central Governments

0

0

0

0

0

0

0

Institutions

0

0

0

0

0

0

0

Corporates

1,367

67

0

4,630

2

0

6,067

Retail

0

0

0

0

0

0

0

Other

1,229

20

440

3,415

2,896

2,424

10,424

Standardized Approach

3,935

7,279

2,521

8,722

7,428

9,748

39,633

Central Governments

61

39

0

73

40

0

213

Institutions

28

12

8

116

32

1

198

Corporates

2,929

6,106

937

2,004

2,788

470

15,235

Retail

10

916

49

4,654

2,627

0

8,257

Other

906

206

1,526

1,876

1,940

9,275

15,729

Market Risk

34,473

562

2,085

128

10,011

0

47,259

Internal Model Approach

29,156

562

1,102

0

8,892

0

39,712

Standardized Approach

5,317

0

983

128

1,120

0

7,547

Operational Risk

22,598

832

4,659

6,964

15,839

0

50,891

Advanced measurement approach

22,598

832

4,659

6,964

15,839

0

50,891

Total

118,689

36,811

12,553

73,001

48,483

10,832

300,369

 

Dec 31, 2012

in € m.

Corporate Banking & Securities

Global Transaction Banking

Deutsche Asset & Wealth Management

Private & Business Clients

Non-Core Operations Unit

Consolidation & Adjustments and Other

Total

Credit Risk

69,763

26,696

6,359

67,804

42,197

16,133

228,952

Segment reallocation

(827)

299

224

294

1,868

(1,858)

0

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

0

0

0

8,726

1,813

0

10,539

Central Governments

0

0

0

32

2

0

35

Institutions

0

0

0

2,217

939

0

3,156

Corporates

0

0

0

6,477

872

0

7,349

Retail

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Other IRBA

2,487

261

455

9,042

8,027

2,321

22,592

Central Governments

0

0

0

0

0

0

0

Institutions

0

0

0

0

0

0

0

Corporates

1,341

240

0

5,574

3,802

0

10,957

Retail

0

0

0

0

0

0

0

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

15,096

52,096

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

14,691

23,555

Market Risk

35,656

365

1,166

360

15,512

0

53,058

Internal Model Approach

31,280

365

1,166

0

13,761

0

46,571

Standardized Approach

4,376

0

0

360

1,751

0

6,487

Operational Risk

19,221

331

4,904

4,530

22,609

0

51,595

Advanced measurement approach

19,221

331

4,904

4,530

22,609

0

51,595

Total

124,640

27,392

12,429

72,695

80,317

16,133

333,605

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, majority of the line item “Other” includes RWAs from our pension fund assets with the remainder being RWAs from banking book securitizations as well as exposures assigned to the further exposure classes in the Standardized Approach apart from central governments, institutions, corporates and retail.

The execution of our divestment strategy in NCOU has resulted in a reduced balance sheet, which triggered a review of our operational risk allocation framework. In line with the NCOU business wind down, we reallocated RWA for operational risk amounting to € 7 billion to our Core Bank in the third quarter of 2013.

Regulatory Capital Requirements and Risk-weighted Assets

 

Dec 31, 2013

Dec 31, 2012

in € m.

Capital requirements

RWA

Capital requirements

RWA

1

Other non-credit obligation assets of Postbank have been integrated into the Advanced IRBA category.

2

Excludes the transitional adjustment according to section 64h (3) of the German Banking Act amounting to € 154 million as of December 31, 2013 and € 236 million as of December 31, 2012.

Counterparty credit risk

 

 

 

 

Advanced IRBA

 

 

 

 

Central governments

348

4,353

301

3,762

Institutions

734

9,175

716

8,946

Corporates

6,512

81,397

6,532

81,646

Retail (excluding Postbank)

1,787

22,342

1,727

21,583

Retail (Postbank)

1,183

14,792

1,157

14,462

Other non-credit obligation assets

459

5,739

494

6,180

Total advanced IRBA

11,024

137,798

10,926

136,580

Foundation approach

 

 

 

 

Central governments

0

2

3

35

Institutions

106

1,320

252

3,156

Corporates

876

10,946

1,465

18,306

Total foundation approach

981

12,268

1,720

21,496

Standardized approach

 

 

 

 

Central governments

2

28

0

1

Regional governments and local authorities

5

68

4

55

Other public sector entities

9

118

26

323

Multilateral development banks

0

0

0

0

International organizations

0

0

0

0

Institutions

16

198

18

230

Covered bonds issued by credit institutions

0

3

1

8

Corporates

1,219

15,235

1,491

18,640

Retail

479

5,982

525

6,564

Claims secured by real estate property

182

2,275

218

2,728

Collective investment undertakings

54

670

196

2,444

Other items

738

9,223

1,176

14,702

Past due items

124

1,553

130

1,625

Total standardized approach

2,828

35,354

3,786

47,320

Risk from securitization positions

 

 

 

 

Securitizations (IRBA)

627

7,834

1,066

13,325

Securitizations (standardized approach)

98

1,222

117

1,457

Total risk from securitization positions

725

9,057

1,183

14,782

Risk from equity positions

 

 

 

 

Equity positions (grandfathered)1

242

3,023

262

3,273

Equity positions (IRBA simple risk-weight approach)

375

4,685

436

5,455

Exchange-traded

43

534

51

632

Non-exchange-traded

323

4,033

369

4,616

Non-exchange-traded but sufficiently diversified

9

118

17

207

Total risk from equity positions

617

7,709

698

8,727

Settlement risk

3

34

4

46

Total counterparty credit risk2

16,178

202,219

18,316

228,952

Market risk in the trading book

 

 

 

 

Internal model approach

3,179

39,738

3,726

46,571

Value-at-Risk

674

8,427

761

9,510

Stressed Value-at-Risk

1,254

15,673

1,641

20,518

Incremental Risk Charge

996

12,446

761

9,509

Comprehensive Risk Measurement (Correlation Trading)

255

3,193

563

7,035

Standardized approach

602

7,521

519

6,487

Interest rate risk – Securitization

473

5,908

429

5,361

Interest rate risk – Nth-to-default derivatives

5

63

14

172

Interest rate risk – Other

1

13

2

26

Equity risk

0

0

0

0

FX risk

16

200

42

524

Commodity risk

0

0

0

0

Other market risk

107

1,338

32

404

Total market risk in the trading book

3,781

47,259

4,245

53,058

Operational risk

 

 

 

 

Advanced measurement approach

4,071

50,891

4,128

51,595

Total regulatory capital requirements and RWA

24,030

300,369

26,688

333,605

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

Development of Risk-weighted Assets for Credit Risk

 

Dec 31, 2013

Dec 31, 2012

in € m.

Counterparty credit risk

thereof: derivatives and repo-style transactions

Counterparty credit risk

thereof: derivatives and repo-style transactions

N/M – Not meaningful

Credit risk RWA balance, beginning of year

228,952

35,274

262,460

50,973

Book Size

(4,516)

(2,167)

(11,898)

(9,516)

Book Quality

(9,701)

(2,247)

N/M

N/M

Model Updates

(2,061)

0

(7,302)

(4,180)

Methodology and Policy

0

0

0

0

Acquisition and Disposals

(5,467)

(3)

(12,670)

(1,567)

Foreign exchange movements

(4,988)

(1,403)

(1,639)

(436)

Credit risk RWA balance, end of year

202,219

29,454

228,952

35,274

We have slightly re-designed the classifications of key drivers for the RWA credit risk development table in order to be fully aligned with the recommendations of the Enhanced Disclosure Task Force (EDTF). The figures for December 31, 2012 have been adjusted accordingly. Only for December 31, 2012 RWA movements in relation to book size and book quality have been provided cumulatively in the category “book size”. The main changes encompass: We split out “book quality” from “book size”, where “book quality” mainly represents the effects from portfolio rating migrations, loss given default, model parameter re-calibrations as well as collateral coverage activities. Organic changes in our portfolio size and composition is considered in the category “book size”. “Model updates” include model refinements and advanced model roll out. RWA movements resulting from externally, regulatory-driven changes, e.g. applying new regulations, are now considered in the “methodology and policy” section. “Acquisition and disposals” is reserved to show significant exposure movements which can be clearly assigned to new businesses and disposal-related activities.

The decrease in RWA for counterparty credit risk by 11.7 % since December 31, 2012 mainly reflects the reduction efforts resulting from de-risking activities. The respective impact is reflected in the category “acquisition and disposal” but also in “book quality” and “book size”, mainly in relation to re-calibrations, increased collateral and netting coverage or process enhancements. The decrease in the category “model updates” primarily shows the impact of additional BaFin approvals received mainly for Postbank where certain exposures in the exposure classes “institutions” and “corporates” are newly assigned to the advanced IRBA.

Development of Risk-weighted Assets for Market Risk

in € m.

Dec 31, 2013

Dec 31, 2012

Market risk RWA balance, beginning of year

53,058

68,095

Movement in risk levels

(8,598)

(322)

Market data changes and recalibrations

1,136

(2,577)

Model updates

542

(707)

Methodology and policy

1,200

(11,215)

Acquisitions and disposals

0

0

Foreign exchange movements

(79)

(216)

Market risk RWA balance, end of year

47,259

53,058

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 € 5.8 billion (11 %) RWA decrease for market risk since December 31, 2012 was primarily driven by decreases in the category of “movement in risk levels”, with some offset from “market data changes” and “methodology and policy”. Risk levels were significantly lower within the internal value-at-risk and stressed value-at-risk models coming from reductions across most asset classes but particularly within credit spread exposures. Reductions were also seen in the comprehensive risk measure due to de-risking within NCOU but there were some increases in the incremental risk. The market risk RWA movements due to changes in market data levels, volatilities, correlations, liquidity and ratings are included under the “market data changes and recalibrations” category. The increase in the first nine months of 2013 was due to an increase within the incremental risk charge, based on a more conservative parameter choice within the calculation. In the “methodology and policy” category we reflect regulatory driven changes to our market risk RWA models and calculations. Changes to our market risk RWA internal models, such as methodology enhancements or risk scope extensions, are included in the category of “model updates”. Significant new businesses and disposals would be assigned to the line item “acquisition and disposal”, which was not applicable in this reporting period.

Development of Risk-weighted Assets for Operational Risk

in € m.

Dec 31, 2013

Dec 31, 2012

Operational risk RWA balance, beginning of year

51,595

50,695

Loss profile changes (internal and external)

2,623

3,496

Expected loss development

(959)

(1,115)

Forward looking risk component

(515)

(2,671)

Model updates

1,885

1,551

Methodology and policy

0

0

Acquisitions and disposals

(3,738)

(361)

Operational risk RWA balance, end of year

50,891

51,595

In the second quarter of 2013 BaFin approved the integration of Postbank into our Group regulatory capital calculation. Given that, the applied acquisition add-on for Postbank was removed and the risk profile of Postbank was incorporated in our Advanced Measurement Approach Model. This resulted in a RWA benefit of € 3.8 billion (incl. diversification effects) compared to year-end 2012. The acquisition add-on of € 109 million for DB Investment Services (former Xchanging Transaction Bank) was calculated based on their Advanced Measurement Approach Model and the integration of DB Investment Services in our Advanced Measurement Approach Model is planned for 2014.

Model Updates of € 1.9 billion containing the implementation of a model enhancement with respect to loss frequency which led to a RWA increase of € 2.4 billion offset in part by a RWA decrease of € 500 million driven by model tail recalibration. Due to an increase of the expected loss as calculated by our Advanced Measurement Approach Model, we were allowed to deduct a higher expected loss, which led to a RWA benefit of € 959 million. The remaining changes originated from changes in the forward looking risk component (qualitative adjustment) and movements in the loss profile of used internal and external data.