Deutsche Bank

Annual Report 2017

Minimum capital requirements and additional capital buffers

The Pillar 1 CET 1 minimum capital requirement applicable to the Group is 4.50 % of risk-weighted assets (RWA). The Pillar 1 total capital requirement of 8.00 % demands further resources that may be met with up to 1.50 % Additional Tier 1 capital and up to 2.00 % Tier 2 capital.

Failure to meet minimum capital requirements can result in supervisory measures such as restrictions of profit distributions or limitations on certain businesses such as lending. We complied with the regulatory capital adequacy requirements in 2017.

In addition to these minimum capital requirements, the following combined capital buffer requirements have been phased in since 2016 (other than the systemic risk buffer, if any, which is not subject to any phase-in) and will become fully effective from 2019 onwards. The buffer requirements must be met in addition to the Pillar 1 minimum capital requirements, but can be drawn down in times of economic stress.

Deutsche Bank continues to be designated as a global systemically important institution (G-SII) by the German Federal Financial Supervisory Authority (BaFin) in agreement with Deutsche Bundesbank, resulting in a G-SII buffer requirement of 2.00 % CET 1 capital of RWA in 2019. This is in line with the Financial Stability Board (FSB) assessment of systemic importance based on the indicators as published in 2017. The additional buffer requirement of 2.00 % for G-SIIs was phased in with 0.5 % in 2016, 1.00 % in 2017 and in 2018 amounts to 1.50 %. We will continue to publish our indicators on our website.

The capital conservation buffer is implemented in Section 10c German Banking Act based on Article 129 CRD 4 and equals a requirement of 2.50 % CET 1 capital of RWA. The additional buffer requirement of 2.50 % was phased in with 0.625 % in 2016, 1.25 % in 2017 and in 2018 amounts to 1.875 %.

The countercyclical capital buffer is deployed in a jurisdiction when excess credit growth is associated with an increase in system-wide risk. It may vary between 0 % and 2.50 % CET 1 capital of RWA by 2019. In exceptional cases, it could also be higher than 2.50 %. The institution specific countercyclical buffer that applies to Deutsche Bank is the weighted average of the countercyclical capital buffers that apply in the jurisdictions where our relevant credit exposures are located. As per December 31, 2017 (and currently), the institution-specific countercyclical capital buffer was at 0.02 %.

In addition to the aforementioned buffers, national authorities, such as the BaFin, may require a systemic risk buffer to prevent and mitigate long-term non-cyclical systemic or macro-prudential risks that are not covered by the CRR. They can require an additional buffer of up to 5.00 % CET 1 capital of RWA. As of the year-end 2017 (and currently), no systemic risk buffer applied to Deutsche Bank.

Additionally, Deutsche Bank AG has been classified by BaFin as other systemically important institution (O-SII) with an additional buffer requirement of 2.00 % that has to be met on a consolidated level. For Deutsche Bank, the O-SII buffer was introduced in first steps of 0.66 % in 2017 and in 2018 amounts to 1.32 %. Unless certain exceptions apply, only the higher of the systemic risk buffer, G-SII buffer and O-SII buffer must be applied. Accordingly, the O-SII buffer is not applicable as of December 31, 2017.

In addition, pursuant to the Pillar 2 Supervisory Review and Evaluation Process (SREP), the European Central Bank (ECB) may impose capital requirements on individual banks which are more stringent than statutory requirements (so-called Pillar 2 requirement). On December 8, 2016, following the results of the 2016 SREP, the ECB informed Deutsche Bank that it must maintain a phase-in CET 1 ratio of at least 9.52 % on a consolidated basis under applicable transitional rules under CRR/CRD 4 at all times, beginning on January 1, 2017. This CET 1 capital requirement comprises the Pillar 1 minimum capital requirement of 4.50 %, the Pillar 2 requirement (SREP Add-on) of 2.75 %, the phase-in capital conservation buffer of 1.25 %, the countercyclical buffer (currently 0.02 %) and the phase-in G-SII buffer of 1.00 %. Correspondingly the requirements for Deutsche Bank's Tier 1 capital ratio were at 11.02 % and total capital ratio at 13.02 % as of December 31, 2017.

On December 19, 2017, Deutsche Bank was informed by the ECB of its decision regarding prudential minimum capital requirements for 2018, following the results of the 2017 SREP. The decision requires Deutsche Bank to maintain a phase-in CET 1 ratio of at least 10.65 % on a consolidated basis, beginning on January 1, 2018. This CET 1 capital requirement comprises the Pillar 1 minimum capital requirement of 4.50 %, the Pillar 2 requirement (SREP Add-on) of 2.75 %, the phase-in capital conservation buffer of 1.875 %, the countercyclical buffer (currently 0.02 %) and the phase-in G-SII buffer of 1.50 %. The new CET 1 capital requirement of 10.65 % for 2018 is higher than the CET 1 capital requirement of 9.52 %, which was applicable to Deutsche Bank in 2017, reflecting the further phase-in of the capital conservation buffer and the G-SII buffer. Correspondingly, 2018 requirements for Deutsche Bank's Tier 1 capital ratio are at 12.15 % and for its total capital ratio at 14.15 %. Also, following the results of the 2017 SREP, the ECB communicated to us an individual expectation to hold a further “Pillar 2” CET 1 capital add-on, commonly referred to as the ‘“Pillar 2” guidance’. The capital add-on pursuant to the “Pillar 2” guidance is separate from and in addition to the Pillar 2 requirement. The ECB has stated that it expects banks to meet the “Pillar 2” guidance although it is not legally binding, and failure to meet the “Pillar 2” guidance does not automatically trigger legal action.

The following table gives an overview of the different Pillar 1 and Pillar 2 minimum capital requirements (but excluding the “Pillar 2” guidance) as well as capital buffer requirements applicable to Deutsche Bank in the years 2017 and 2018 (articulated on a phase-in basis):

Overview total capital requirements and capital buffers

 

 

 

2017

2018

1

Deutsche Bank’s countercyclical buffer requirement is subject to country-specific buffer rates decreed by EBA and the Basel Committee of Banking Supervision (BCBS) as well as Deutsche Bank’s relevant credit exposures as per respective reporting date. The countercyclical buffer rate for 2018 has been assumed to be 0.02 % due to unavailability of 2018 data.

2

The systemic risk buffer has been assumed to remain at 0 % for the projected year 2018, subject to changes based on further directives.

3

Unless certain exceptions apply only the higher of the systemic risk buffer, G-SII and O-SII buffer must be applied.

4

The total Pillar 1 and Pillar 2 CET 1 requirement (excluding the “Pillar 2” guidance) is calculated as the sum of the SREP requirement, the higher of the G-SII, O-SII and systemic risk buffer requirement as well as the countercyclical buffer requirement.

Pillar 1

 

 

Minimum CET 1 requirement

4.50 %

4.50 %

Capital Conservation Buffer

1.25 %

1.875 %

Countercyclical Buffer

0.02 %

0.02 %1

G-SII Buffer3

1.00 %

1.50 %

O-SII Buffer3

0.66 %

1.32 %

Systemic Risk Buffer3

0.00 %

0.00 %2

Pillar 2

 

 

Pillar 2 SREP Add-on of CET 1 capital (excluding the "Pillar 2" guidance)

2.75 %

2.75 %

SREP CET 1 Requirement

8.50 %

9.125 %

Total CET 1 requirement from Pillar 1 and 24

9.52 %

10.65 %

Total Tier 1 requirement from Pillar 1 and 2

11.02 %

12.15 %

Total capital requirement from Pillar 1 and 2

13.02 %

14.15 %