Results of Regulatory Backtesting of Trading Market Risk

In 2014, we observed one global outlier compared with two outliers in 2013. The outlier occurred in January 2014 driven by market movements beyond the historical 1 year 99 percentile level and an increased level of co-movement between risk factors not captured in the prevailing one year time window. Based on the backtesting results, our analysis of the underlying reasons for outliers and enhancements included in our value-at-risk methodology we continue to believe that our value-at-risk model will remain an appropriate measure for our trading market risk under normal market conditions.

The following graph shows the trading units daily buy-and-hold income in comparison to the value-at-risk as of the close of the previous business day for the trading days of the reporting period. The value-at-risk is presented in negative amounts to visually compare the estimated potential loss of our trading positions with the buy and hold income. Figures are shown in millions of euro and exclude contributions from Postbank’s trading book which is calculated on a stand-alone basis. The chart shows that our trading units achieved a positive buy and hold income for 52 % of the trading days in 2014 (versus 52 % in 2013), as well as displaying the one global outlier in 2014.

Comparison of trading units daily buy-and-hold income and value-at-risk in 2014
Comparison of trading units daily buy-and-hold income and value-at-risk in 2014 (bar chart)

Daily Income of our Trading Units

The following histogram shows the distribution of daily income of our trading units (excluding Postbank). Daily income is defined as total income which consists of new trades, fees & commissions, buy & hold income, reserves, carry and other income. It displays the number of trading days on which we reached each level of trading income shown on the horizontal axis in millions of euro.

Distribution of daily income of our trading units in 2014
Distribution of daily income of our trading units in 2014 (bar chart)

Our trading units achieved a positive actual income for 95 % of the trading days in 2014 (versus 94 % in 2013).

Economic Capital Usage for our Trading Market Risk

The economic capital usage for trading market risk was € 5.0 billion at year-end 2014 compared with € 4.2 billion at year-end 2013. Our trading market risk economic capital usage increased by approximately € 758 million, or 18 %. This increase was mainly driven by increased exposures in fair value banking books.

Postbank’s contribution to the economic capital usage for our trading market risk was minimal.

Valuation of Market Risk Positions

For details about our methods for determining fair value see the respective section in Note 1 “Significant Accounting Policies and Critical Accounting Estimates” of our financial statements.

Regulatory prudent valuation of assets carried at fair value

Pursuant to Article 34 CRR institutions shall apply the prudent valuation requirements of Article 105 CRR to all assets measured at fair value and shall deduct from CET1 capital the amount of any additional value adjustment necessary.

The approach we applied to the prudent valuation of our assets measured at fair value is based on these requirements and is unchanged to previous years and does not reflect the methodology as laid out in the final EBA standard on prudent valuation.

Based on our interpretation of the requirements we have reached the conclusion that the categories of valuation adjustments which must be considered to determine the regulatory prudent value of fair-valued assets are already covered by our standards and policies for IFRS fair value measurement as well as other regulatory standards including those for operational risk. This result is based on our understanding that assets measured at fair value under IFRS will meet the existing regulatory prudent valuation requirements, if the relevant categories of valuation adjustments have been considered in the determination of the fair value of the asset under IFRS. We provide further information on the valuation methodology we used under IFRS in Note 14 “Financial Instruments carried at Fair Value”.

In January 2015 the European Banking Authority (EBA) has re-issued a draft Regulatory Technical Standard (EBA RTS 2014/06/rev1) which defines a specific measurement methodology for calculating the amount of the required additional value adjustment. This measurement methodology, which is different to our current and past practice, is currently being considered by the European Commission for adoption in European Banking regulation.

We currently prepare for the potential future application of this new standard for calculating the amount of any additional value adjustment necessary. In contrast to the existing requirements, which identify the categories of valuation adjustments that must be considered for prudent valuation purposes, the new standard defines a specific measurement methodology for calculating the additional value adjustment for each category. Since this methodology is not consistent with the methodology used under IFRS, the future application of the new standard will lead to a difference between the IFRS fair value and the regulatory prudent value.

We currently estimate the amount of the additional value adjustment arising in case of a future application of the new standard to range between € 1.5 and € 2.0 billion. Following guidance provided by the EBA we will only consider this additional value adjustment in the calculation of our CET1 capital once the new standard has been adopted and published by the European Commission (unless a later application date would apply).


Key figures comparison

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