Deutsche Bank

Annual Report 2017

Nontrading Market Risk Exposures

Economic Capital Usage for Nontrading Market Risk

The following table shows the Nontrading Market Risk economic capital usage by risk type:

Economic Capital Usage by risk type

 

Economic capital usage

in € m.

Dec 31, 2017

Dec 31, 2016

Interest rate risk

1,743

1,921

Credit spread risk

722

1,419

Equity and Investment risk

1,431

1,834

Foreign exchange risk

1,509

2,485

Pension risk

1,174

1,007

Guaranteed funds risk

49

1,699

Total nontrading market risk portfolios

6,628

10,364

The economic capital figures do take into account diversification benefits between the different risk types.

Economic Capital Usage for Nontrading Market Risk totaled € 6.6 billion as of December 31, 2017, which is € 3.7 billion below our economic capital usage at year-end 2016. The decrease in economic capital usage driven by the quantile change from 99.98 % to 99.90 % including reductions in capital supply items due to going concern adjustments amounted to approximately half of the total decrease, or € 1.8 billion.

  • Interest rate risk. Economic capital charge for interest rate risk in the banking book, including gap risk, basis risk and option risk, such as the risk of a change in client behavior embedded in modelled non-maturity deposits or prepayment risk. In total the economic capital usage for December 31, 2017 was € 1,743 million, compared to € 1,921 million for December 31, 2016. The decrease in economic capital contribution was mainly driven by the quantile change from 99.98 % to 99.90 %.
  • Credit spread risk. Economic capital charge for portfolios in the banking book subject to material credit spread risk. Economic capital usage was € 722 million as of December 31, 2017, versus € 1,419 million as of December 31, 2016. The decrease in economic capital contribution was mainly driven by the quantile change from 99.98 % to 99.90 %.
  • Equity and Investment risk. Economic capital charge for equity risk from our non-consolidated investment holdings, such as our strategic investments and alternative assets, and from a structural short position in our own share price arising from our equity compensation plans. The economic capital usage was € 1,431 million as of December 31, 2017, compared with € 1,834 million as of December 31, 2016, predominately driven by the quantile change from 99.98 % to 99.90 %.
  • Pension risk. This risk arises from our defined benefit obligations, including interest rate risk and inflation risk, credit spread risk, equity risk and longevity risk. The economic capital usage was € 1,174 million and € 1,007 million as of December 31, 2017 and December 31, 2016 respectively. The increase in Pension economic capital is mainly related to an increase in interest rate and credit risk.
  • Foreign exchange risk. Foreign exchange risk predominately arises from our structural position in unhedged capital and retained earnings in non-euro currencies in certain subsidiaries. Our economic capital usage was € 1,509 million as of December 31, 2017 versus € 2,485 million as of December 31, 2016. The decrease in economic capital contribution was mainly driven by reductions in capital supply items due to going concern adjustments and the quantile change from 99.98 % to 99.90 %.
  • Guaranteed funds risk. Economic capital usage was € 49 million as of December 31, 2017, versus € 1,699 million as of December 31, 2016. The decrease in economic capital contribution was largely driven by redesign of the economic capital model for guaranteed retirement accounts and the removal of conservative placeholders.

Interest Rate Risk in the Banking Book

The following table shows the impact on the Group’s net interest income in the banking book as well as the change of the economic value for the banking book positions from interest rate changes under the six standard scenarios defined by Basel Committee on Banking Supervision (BCBS):

Economic value & net interest income interest rate risk in the banking book by scenario

 

Delta EVE

Delta NII1

in € bn.

Dec 31, 2017

Dec 31, 2016

Dec 31, 2017

Dec 31, 2016

N/A – Not applicable

1

Delta Net Interest Income (NII) reflects the difference between projected NII in the respective scenario with shifted rates vs. unchanged rates. Sensitivities are based on a static balance sheet at constant exchange rates, excluding trading positions and Deutsche Asset Management. Figures do not include Mark to Market (MtM) / Other Comprehensive Income (OCI) effects on centrally managed positions not eligible for hedge accounting.

Parallel up

(0.4)

(0.3)

2.8

2.1

Parallel down

(1.1)

(0.4)

(0.8)

(0.6)

Steepener

0.2

0.4

(0.6)

N/M

Flattener

(0.6)

(0.5)

2.7

N/M

Short rate up

(0.5)

(0.6)

3.5

N/M

Short rate down

0.0

(0.0)

(0.7)

N/M

Maximum

(1.1)

(0.6)

(0.8)

(0.6)

 

 

 

 

 

in € bn.

Dec 31, 2017

Dec 31, 2016

 

 

Tier 1 Capital

57.6

55.5

 

 

A sudden parallel increase in the yield curve would positively impact the Group’s earnings (net interest income) from the banking book positions. Deutsche Bank estimates that the total one-year net interest income change resulting from parallel yield curve shifts of +200 and (200) basis points (floored by a rate of zero) would be € 2.8 billion and € (0.8) billion, respectively, at December 31, 2017.

The maximum Economic Value of Equity (EVE) loss was € (1.1) billion as of December 2017, compared to € (0.6) billion as of December 2016. The increase in EVE loss was mainly driven by an increased interest rate risk position in Deutsche Bank’s Pension portfolio. As per December 2017 the maximum EVE loss represents 1.9 % of Tier 1 Capital.

The following table shows the variation of the economic value for Deutsche Bank’s banking book positions resulting from downward and upward interest rate shocks by currency:

Economic value interest rate risk in the banking book by currency

 

Dec 31, 2017

in € bn.

−200 bp1

+200 bp

1

Floored at zero

EUR

(1.3)

(0.3)

GBP

(0.0)

(0.0)

USD

0.3

(0.2)

JPY

(0.0)

0.1

Other

0.0

0.0

Total

(1.1)

(0.4)

The estimated change in the economic value resulting from the impact of the BCBS parallel yield curve shifts of −200 bp (floored by a rate of zero) and +200 bp would be € (1.1) billion and € (0.4) billion, respectively, at December 31, 2017. Both scenarios, downward and upward shock, lead to a decrease in the economic value mainly due to a negative convexity in Deutsche Bank’s Pension portfolio and the impact of the applied zero floor on portfolios with offsetting positions in the long and short tenors.