Operational Risk

In the first half of 2014 our operational loss profile continued to be driven by legal operational risk losses including legal provisions even as the sum of both decreased compared to year-end 2013. For a more detailed description of our current litigations, please see Section “Other Contingencies” of this Interim Report. Our non-legal operational risk losses declined compared with the year-end 2013. The outlook for rest of year remains cautious, due to the legal and regulatory environment that we believe will continue to affect our business. Our operational risk management fosters a forward looking risk management with regard to monitoring of potential profits and losses, focusing on trend analyses based upon available losses and key risk indicator data.

Economic Capital Usage for Operational Risk by Business Division

 

 

 

2014 increase (decrease) from 2013

in € m.
(unless stated otherwise)

Jun 30, 2014

Dec 31, 2013

in € m.

in %

Corporate Banking & Securities

3,095

2,475

620

25

Private & Business Clients

1,055

803

252

31

Global Transaction Banking

133

96

37

39

Deutsche Asset & Wealth Management

742

580

162

28

Non-Core Operations Unit

1,360

1,298

62

5

Total economic capital usage for operational risk

6,385

5,253

1,132

22

The economic capital usage for operational risk as of June 30, 2014 was € 6.4 billion, € 1.1 billion or 22 %, higher compared to year-end 2013. The increase is mainly driven by a proactive recognition of the impact of model enhancements to our Advanced Measurement Approach (AMA) model, see below. This increase in economic capital is spread across all business divisions.

Operational Risk Framework Development

We apply an Advanced Measurement Approach (AMA) for the Operational Risk regulatory capital calculation. The AMA model is subject to a continuous validation and enhancement in an effort to adequately reflect our risk profile. As part of the continuous enhancement and validation of our model we recently submitted model changes to BaFin and are awaiting approval. These model changes include an improved validation and recalibration methodology for insurance recoveries, changes to the modelling of the loss frequency as well as an enhanced scoring mechanism for the key risk indicators in the AMA model.

Further, we have submitted an additional model change request to BaFin to replace our € 1 billion safety margin, which we continuously apply since its implementation in 2011. This model change adds increased forward looking aspects to the AMA model. This change will make our model more risk sensitive by including reasonably possible litigation losses in our “Relevant Loss Data”. These reasonably possible litigation losses may result from both ongoing legal matters and new legal matters, which are reviewed quarterly and are based on the judgements of the counsel.

While our dialogue with BaFin on these model enhancements is on-going, management has decided to recognise the impact of these model changes where they will lead to an increase in capital requirement over our models that have previously been approved by BaFin.