Minimum capital requirements and additional capital buffers

The implementation of CRR/CRD 4 aims to strengthen the regulatory capital in the banking system in particular by setting higher minimum capital requirements for CET 1 capital and by introducing new capital buffer requirements that have to be met solely with CET 1 capital. New minimum capital requirements are phased-in starting in 2014, while new capital buffer requirements are phased-in starting 2016.

In 2013 under the Basel 2.5 regulation the minimum capital requirement of CET 1 capital has been set at 2 % of RWA. Under the new rules of CRR/CRD 4 this minimum requirement increased significantly to 4 % in 2014 and to 4.5 % from 2015 onwards, which represents the end of the phase in period of the CET 1 minimum capital requirement. The total capital requirement of 8 % demands further resources that may be met with up to 1.5 % AT1 capital and up to 2 % Tier 2 capital from 2015 onwards. Deutsche Bank is at year-end 2014 well above these minimum requirements.

Failure to meet minimum capital requirements can result in orders to suspend or reduce dividend payments or other profit distributions on regulatory capital and discretionary actions by the BaFin and ECB that, if undertaken, could have a direct material effect on our businesses. We complied with the regulatory capital adequacy requirements in 2014. Our subsidiaries which have to comply with own minimum capital standards and were not included in our regulatory consolidation due to their immateriality reported in one case an insignificant capital deficiency of € 16 thousands in 2014.

Beside the minimum capital requirement CRR/CRD 4 requires institutions to fulfill further capital buffers that can be drawn down in times of economic stress to absorb losses; nevertheless they are not classified as minimum requirements. The following gives an overview of the different capital buffers.

The capital conservation buffer is designed to ensure that institutions build up capital buffers outside periods of stress that may be drawn down when necessary. The capital conservation buffer equals a requirement of 2.5 % CET 1 of RWA. In Germany it is phased in during a transitional period from 2016 until 2019 in steps of 0.625 %. It is implemented in Section 10c German Banking Act, based on Article 129 CRD 4. This buffer is therefore not applicable as of year-end 2014.

The countercyclical capital buffer, implemented in Section 10d German Banking Act, Sections 33 to 35 German Solvency Regulation based on Articles 135 to 139 CRD 4, aims to counter excessive credit growth in an economy. It is deployed when excess credit growth is associated with an increase in system wide risk. It is a weighted average of the countercyclical capital buffers that apply in the jurisdictions where our relevant credit exposures are located. The buffer may vary between 0 % to 2.5 % CET 1 of RWA, in a given case even higher, depending on each individual requirement set by the different national regulators. It is introduced on a transitional basis from 2016 until 2019. As of year-end 2014, no countercyclical capital buffer was relevant for Deutsche Bank.

The buffer for global systemically important institutions (G-SII buffer), implemented in Section 10f German Banking Act, based on Article 131 (2), (4), (9) to (18) CRD 4, aims to address the “too-big-to fail” problem, i.e. the higher risk that these large financial institutions represent for the financial system due to their size, market importance or interconnectedness in case of a failure. To face this issue, banks are categorized into buckets that are linked with different buffer requirements, based on an indicator-based approach as proposed by the Financial Stability Board (FSB), which comprises five main indicators: size, interconnectedness, substitutability (i.e. lack of readily available substitutes or financial institution infrastructure), complexity and global (cross-jurisdictional) activity. The G-SII buffer will range from 1 % to 2.5 % CET 1 of RWA, depending on the above mentioned systemic importance of an institution. In addition, there is an initially empty bucket of 3.5 % as a means to discourage institutions from becoming even more systemically important. Deutsche Bank qualifies as a G-SII that falls into the second highest bucket, based on the indicators as published in 2014 on our website that was the basis for the requirement of 2 % CET 1 of RWA. The additional buffer requirement of 2 % will be phased in starting 2016. We will continue to publish our indicators on our website.

Another upcoming requirement to address the “too-big-to fail” problem is the total loss-absorbing capacity (TLAC) which is currently in the consultation process. The objective of this requirement is to ensure the availability of adequate loss-absorbing capacity for global systemically important institutions in resolution. An introduction is currently planned in 2019. Deutsche Bank monitors the development of this requirement on an ongoing basis to be prepared for its fulfillment.

In addition to the buffers introduced by Basel, national authorities may require for a systemic risk buffer to prevent and mitigate long-term non-cyclical systemic or macroprudential risks that are not covered by the CRR. They can require an additional buffer of up to 5 % CET 1 of RWA. It is to be noted that usually only the higher one out of the systemic risk buffer and the G-SII buffer must be applied. This capital buffer was not applicable for Deutsche Bank as of year-end 2014.

The following chart presents the CRR/CRD 4 capital requirements that were applicable to Deutsche Bank at year-end 2014 as well as capital requirements that will be applicable from 2015 onwards. The chart shows the highest possible requirements that might occur based on the CRD 4 and its implementation into German law, before any additional requirements as a result of the Supervisory Review and Evaluation Process (SREP). Pursuant to the SREP, the ECB may impose capital requirements on individual banks which are more stringent than statutory requirements. On February 20, 2015, the ECB notified us that we are required to maintain a CET 1 ratio of at least 10 % (on a phase-in basis) at all times.

Overview total capital requirements and capital buffers
Overview total capital requirements and capital buffers (bar chart)

Treatment of year-end profits for the solvency report

On February 11, 2015 we submitted the solvency report for Deutsche Bank Group as of December 31, 2014 to the regulatory authorities in line with the Decision (EU) (2015/4) of the ECB of February, 4 2015 defining the conditions under which credit institutions are permitted to include interim or year-end profits in CET 1 capital in accordance with Article 26 (2) CRR. According to this Decision at that point in time we excluded our full year profits in our CET 1 capital calculation resulting in the following capital figures, RWA and capital ratios.

Overview of Regulatory Capital, RWA and Capital Ratios according to CRR/CRD 4 excluding year-end profits and Basel 2.5 (audited)

 

Dec 31, 2014

Dec 31, 2013

in € m.

CRR/CRD 4
fully-loaded

CRR/CRD 4

Basel 2.5

Common Equity Tier 1 capital before regulatory adjustments

65,270

65,694

53,558

Total regulatory adjustments to Common Equity Tier 1 (CET 1) capital

(19,759)

(6,086)

(15,024)

Common Equity Tier 1 (CET 1) capital

45,511

59,608

38,534

Additional Tier 1 (AT1) capital before regulatory adjustments

4,676

14,696

12,701

Total regulatory adjustments to Additional Tier 1 (AT1) capital

(57)

(10,907)

(519)

Additional Tier 1 (AT1) capital

4,619

3,789

12,182

Tier 1 capital (T1 = CET 1 + AT1)

50,129

63,397

50,717

Tier 2 (T2) capital before regulatory adjustments

12,412

4,913

7,787

Total regulatory adjustments to Tier 2 (T2) capital

(36)

(523)

(3,040)

Tier 2 (T2) capital

12,376

4,390

4,747

Total Regulatory capital (TC = T1 + T2)

62,506

67,787

55,464

Total risk-weighted assets

393,757

396,468

300,369

 

 

 

 

Capital ratios

 

 

 

Common Equity Tier 1 capital ratio (as a percentage of risk-weighted assets)

11.6

15.0

12.8

Tier 1 capital ratio (as a percentage of risk-weighted assets)

12.7

16.0

16.9

Total Regulatory capital ratio (as a percentage of risk-weighted assets)

15.9

17.1

18.5

The Decision (EU) (2015/4) of the ECB allows the inclusion of year-end profits in CET 1 capital after deduction of the dividend formally proposed or decided by the management body.

The calculation of the regulatory capital numbers and ratios presented in this report include year-end profits after the deduction of a dividend payment of € 0.75 per share proposed by the Management Board to the Supervisory Board and the Annual General Meeting.


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