Deutsche Bank

Annual Report 2017

Risk Profile

The table below shows our overall risk position as measured by the economic capital usage calculated for credit, market, operational and business risk for the dates specified. To determine our overall (economic capital) risk position, we generally consider diversification benefits across risk types.

Overall risk position as measured by economic capital usage by risk type

 

 

 

2017 increase (decrease)
from 2016

in € m.
(unless stated otherwise)

Dec 31, 2017

Dec 31, 2016

in € m.

in %

1

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

Credit risk

10,769

13,105

(2,336)

(18)

Market risk

10,428

14,593

(4,165)

(29)

Trading market risk

3,800

4,229

(429)

(10)

Nontrading market risk

6,628

10,364

(3,736)

(36)

Operational risk

7,329

10,488

(3,159)

(30)

Business risk

5,677

5,098

579

11

Diversification benefit1

(7,074)

(7,846)

772

(10)

Total economic capital usage

27,129

35,438

(8,309)

(23)

As of December 31, 2017, our economic capital usage amounted to € 27.1 billion, which was € 8.3 billion or 23 %, below the € 35.4 billion economic capital usage as of December 31, 2016. The decrease was mainly driven by the change in the quantile from 99.98 % to 99.9 %. The quantile change is due to our revised internal capital adequacy perspective from a “gone-concern” to a perspective aimed at maintaining the viability of Deutsche Bank, including a revised capital supply as further explained in the section “Internal Capital Adequacy”.

The economic capital usage for credit risk was € 2.3 billion or 18 % lower as of December 31, 2017 compared to year-end 2016 mainly due to quantile change which led a decrease in credit risk economic capital as of November 2017 by € 3.66 billion, partly offset by a higher counterparty risk component.

The economic capital usage for trading market risk decreased to € 3.8 billion as of December 31, 2017, compared to € 4.2 billion at year-end 2016. The decrease was primarily driven by the change of the quantile, which led to a reduction in trading market risk by € 0.6 billion, partially offset by an increase in traded default risk component exposure. The nontrading market risk economic capital usage decreased by € 3.7 billion or 36 % compared to December 31, 2016, mainly driven by a considerable decrease in the guaranteed funds risk from the application of a new methodology and due to lower structural foreign exchange risk exposure. The quantile change led to a decrease in nontrading market risk economic capital as of November 2017 by € 1.8 billion.

The operational risk economic capital usage totaled € 7.3 billion, as of December 31, 2017, which is € 3.2 billion or 30 % lower than the € 10.5 billion economic capital usage as of December 31, 2016.The decrease was almost exclusively driven by the impact from the change in the reference confidence level, which was only marginally offset by the effects that also led to the small increase in regulatory capital for operational risk as outlined in the section “Operational Risk Management”.

Our business risk economic capital methodology captures strategic risk, which also implicitly includes elements of non-standard risks including refinancing and reputational risk, a tax risk component and a capital charge for IFRS deferred tax assets on temporary differences. The business risk increased by € 578 million compared to December 31, 2016, to € 5.7 billion as of December 31, 2017. This increase reflected a higher economic capital usage for the tax risk component by € 267 million and a deferred tax capital charge of € 686 million partially offset by the lower economic capital quantile used since November 2017 by € 791 million. Further details can be found in the section “Internal Capital Adequacy”.

The inter-risk diversification effect of the economic capital usage across credit, market, operational and strategic risk decreased by € 772 million mainly due to quantile change and due to an overall lower economic capital usage.

Our mix of business activities results in diverse risk taking by our business divisions. We also measure the key risks inherent in their respective business models through the undiversified economic capital demand (EC) metric, which mirrors each business division’s risk profile before taking into account cross-risk effects at the Group level.

Risk profile of our business divisions as measured by economic capital

 

Dec 31, 2017

in € m.
(unless stated otherwise)

Corpo­rate & Invest­ment Bank

Private & Commercial Bank

Deutsche Asset Manage­ment

Non-Core Opera­tions Unit

Consoli­dation & Adjust­ments

Total

Total (in %)

N/M – Not meaningful

1

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

Credit Risk

6,519

3,596

62

-

591

10,769

40

Market Risk

4,679

1,386

310

-

4,054

10,428

38

Operational Risk

5,995

932

402

-

0

7,329

27

Business Risk

4,435

10

99

-

1,133

5,677

21

Diversification Benefit1

(5,450)

(950)

(264)

-

(410)

(7,074)

(26)

Total EC

16,178

4,974

609

-

5,368

27,129

100

Total EC in %

60

18

2

-

20

100

N/M

 

Dec 31, 20161

in € m.
(unless stated otherwise)

Corpo­rate & Invest­ment Bank

Private & Commercial Bank

Deutsche Asset Manage­ment

Non-Core Opera­tions Unit

Consoli­dation & Adjust­ments

Total

Total (in %)

N/M – Not meaningful

1

Amounts allocated to the business segments have been restated to reflect comparatives according to the structure as of December 31, 2016.

2

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

Credit Risk

8,185

4,308

62

108

442

13,105

37

Market Risk

5,341

1,712

2,197

332

5,010

14,593

41

Operational Risk

8,330

1,437

561

160

0

10,488

30

Business Risk

4,753

32

100

245

(32)

5,098

14

Diversification Benefit2

(6,008)

(1,039)

(441)

(110)

(248)

(7,846)

(22)

Total EC

20,602

6,449

2,480

735

5,172

35,438

100

Total EC in %

58

18

7

2

15

100

N/M

Corporate & Investment Bank’s (CIB) risk profile is dominated by its trading in support of origination, structuring and market making activities, which gives rise to market risk and credit risk. The vast majority of its credit risk relates to trade finance activities in Global Transaction Banking and corporate finance activities in Financing and Origination & Advisory.The share of the operational risk in CIB’s risk profile reflects a high loss profile in the industry combined with internal losses and has increased compared to the year-end 2016. The remainder of CIB’s risk profile is derived from business risk reflecting earnings volatility risk. The economic capital usage for business risk increased compared to year-end 2016 mainly due to a higher economic capital usage for the strategic risk component. The quantile change led to a decrease of economic capital in CIB by € 6.3 billion.

Private & Commercial Bank’s (PCB) risk profile comprises credit risk from retail, small and medium-sized enterprises lending and wealth management activities as well as nontrading market risk from investment risk, modelling of client deposits and credit spread risk. The economic capital usage for market risk decreased compared to the year-end 2016 mainly due to a lower nontrading market risk component. The quantile change led to a decrease of economic capital in PCB by € 1.8 billion.

The main risk driver of Deutsche Asset Management’s (Deutsche AM) business are guarantees on investment funds, which we report as nontrading market risk. Otherwise Deutsche AM’s advisory and commission focused business attracts primarily operational risk. The economic capital usage for market risk decreased compared to the year-end 2016 mainly due to a lower nontrading market risk component resulting from the application of a new methodology to measure guaranteed funds risk. The quantile change led to a decrease of economic capital in Deutsche AM by € 469 million.

The Non-Core Operations Unit (NCOU) portfolio included activities that are non-core to the Bank’s future strategy; assets earmarked for de-risking; assets suitable for separation; assets with significant capital absorption but low returns; and assets exposed to legal risks. NCOU’s risk profile covered risks across the entire range of our operations. The economic capital usage across all risk types decreased throughout 2016 mainly due to general wind-down of non-strategic assets. The NCOU was dissolved as of the beginning of 2017 and its assets were reallocated to the other segments.

Consolidation & Adjustments mainly comprises nontrading market risk for structural foreign exchange risk, pension risk and equity compensation risk. The economic capital usage for market risk and tax risk as part of business risk increased compared to the year-end 2016. The quantile change led to a decrease of economic capital in Consolidation & Adjustments by € 1.8 billion.