Operational Risk

In the first nine months of 2014 our operational losses continued to be driven by legal operational risk losses including legal provisions. Total legal losses year to date are lower compared to the full year 2013. For a description of our current litigations, please see Section “Other Contingencies” of this Interim Report. Our non-legal operational risk losses continued to be lower than for the full year 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)

Sep 30, 2014

Dec 31, 2013

in € m.

in %

Corporate Banking & Securities

3,285

2,475

810

33

Private & Business Clients

1,120

803

317

39

Global Transaction Banking

141

96

45

47

Deutsche Asset & Wealth Management

788

580

208

36

Non-Core Operations Unit

1,444

1,298

146

11

Total economic capital usage for operational risk

6,778

5,253

1,525

29

The economic capital usage for operational risk as of September 30, 2014 was € 6.8 billion, € 1.5 billion or 29 % higher compared to year-end 2013. The increase is mainly driven by an early recognition of the impact of model enhancements to our Advanced Measurement Approach (AMA) model implemented in the second quarter, 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 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 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 economic capital safety margin, which we continuously apply since its implementation in 2011. This model change, which adds increased forward looking aspects to the AMA model, will result in higher economic capital even after the replacement of the safety margin. 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 provided by our Legal Department.

While our dialogue with BaFin on these model enhancements is ongoing, 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.