Basel 2.5 Solvency Measures

Our comparative numbers for year-end 2013 are based on Basel 2.5 rules. Major differences in the calculation of regulatory capital are related to tighter definition of all capital components and stricter regulatory adjustments applied in the calculation of the respective capital component as introduced by the CRR/CRD 4 framework.

Common Equity Tier 1 capital under Basel 2.5 consisted primarily of common share capital including related share premium accounts and retained earnings. Under CRR/CRD 4 transitional rules, capital instruments no longer eligible are phased-out. Note however, that this entails no material changes for common shares under German law.

Amongst other, regulatory adjustments under Basel 2.5 included items that were deducted half from each of Tier 1 and Tier 2 capital such as deduction of financial and insurance entities where a bank holds more than 10 % of the capital, shortfall of provisions to expected loss or securitization positions which qualify for a risk weight of 1,250 %. These items are treated differently under CRR/CRD 4, as outlined in the section above.

Other regulatory adjustments entailed the reversal of capital effects under the fair value option on financial liabilities due to own credit risk. The reversal of these capital effects is also implemented under CRR/CRD 4 and further applies to all fair value gains and losses arising from the institution’s own credit risk related to derivative liabilities.

Under Basel 2.5 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. These limits are not implemented under CRR/CRD 4 rules. Capital instruments no longer eligible are phased-out, however subject to grandfathering rules.

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. Under CRR/CRD 4 rules, these limits are not implemented. Capital instruments no longer eligible are phased-out, subject to grandfathering rules. Under CRR/CRD 4 unrealized gains no longer contribute to T2.