Risk Management Framework
The wide variety of our businesses requires us to identify, measure, aggregate and manage our risks effectively, and to allocate our capital among our businesses appropriately. We operate as an integrated group through our divisions, business units and infrastructure functions. We manage risk and capital through a framework of principles, organizational structures as well as measurement and monitoring processes that are closely aligned with the activities of the divisions and business units. Further information about our risk management framework, which has remained principally unchanged since yearend 2012, can be found in our .
The 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 June 30, 2013 and December 31, 2012.
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 generally 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.
In the European Union, the Regulation on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation, or “CRR”) and the Directive on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (Capital Requirements Directive 4, or “CRD 4”) implementing Basel 3 were passed on June 27, 2013. They represent the new regulatory framework regarding capital, leverage and liquidity ratios applicable by January 1, 2014.
We provide details on our respective CRR/CRD 4 capital ratio application in the respective paragraph within the non-GAAP financial measures section. We have also reassessed our leverage ratio calculation and provide further details in the balance sheet management section.
Disclosures according to principles and recommendations of the Enhanced Disclosure Task Force (EDTF)
In 2012 the Enhanced Disclosure Task Force (“EDTF”) of which we are a member 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. Whilst we integrated nearly all recommended disclosures already into the year-end reporting for 2012 we chose to focus on the most relevant for the quarterly reportings.
Scope of Consolidation
The following risk disclosures providing quantitative information are presented in accordance with International Financial Reporting Standards. Consequently, the disclosure is generally based on the IFRS principles of valuation and consolidation. However, for a few disclosures, regulatory principles of consolidation are relevant which differ from those applied for our financial statements and are described in more detail in our . Where the regulatory relevant scope is used this is explicitly stated.
Overall Risk Assessment
Key risk categories for us include credit risk, market risk, operational risk (including legal risk), business risk (including tax and strategic risk), reputational risk and liquidity risk. We manage the identification, assessment and mitigation of top and emerging risks through a rigorous governance process and robust risk management tools and processes. Our proactive approach to identification and impact assessment aims to ensure that we mitigate the impact of these risks on our financial results, long term strategic goals and reputation.
As part of our regular risk and cross-risk analysis, sensitivities of the key portfolio risks are reviewed through a bottom-up risk assessment and through a top-down macro-economic and political scenario analysis. This two-pronged approach allows us to capture risks that have an impact across our risk inventories and business divisions or those that are relevant only to specific portfolios.
Current portfolio-wide risks on which we continue to focus include: the potential escalation of the European sovereign debt crisis, the impact of a potential U.S. fiscal stalemate, a potential slowdown in Asian growth and the potential risk of a geopolitical shock. These risks have been an overall consistent focus throughout recent quarters. The assessment of the potential impacts of these risks is made through integration into our group-wide stress tests which assess our ability to absorb these events should they occur. The results of these tests showed that we currently have adequate capital and liquidity reserves to absorb the impact of these risks if they were to materialize in line with the tests’ parameters.
The year 2012 saw increased regulation in the financial services industry and the first half of 2013 has confirmed that this trend is likely to continue through 2013. We are focused on ensuring that we act proactively to identify potential political and regulatory changes and assess the possible impact on our business model and processes.