SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank
Annual Report 2010 on Form 20-F
Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk 137
Credit Risk
Credit risk arises from all transactions where actual, contingent or potential claims against any counterparty,
borrower or obligor (which we refer to collectively as “counterparties”) exist, including those claims that we plan
to distribute (see further below in the more detailed credit risk section). These transactions are typically part of
our traditional non-traded lending activities (such as loans and contingent liabilities), or our direct trading activity
with clients (such as OTC derivatives, FX forwards and Forward Rate Agreements) or are related to our positions
in traded credit products (such as bonds). This latter risk, which we call “Traded Default Risk” is managed
using both credit and market risk parameters. We distinguish between three kinds of credit risk:
— Default risk is the risk that counterparties fail to meet contractual payment obligations.
— Country risk is the risk that we may suffer a loss, in any given country, due to any of the following reasons:
a possible deterioration of economic conditions, political and social upheaval, nationalization and expropriation
of assets, government repudiation of indebtedness, exchange controls and disruptive currency depreciation
or devaluation. Country risk includes transfer risk which arises when debtors are unable to meet their
obligations owing to an inability to transfer assets to nonresidents due to direct sovereign intervention.
— Settlement risk is the risk that the settlement or clearance of transactions will fail. It arises whenever the
exchange of cash, securities and/or other assets is not simultaneous.
Market Risk
Market risk arises from the uncertainty concerning changes in market prices and rates (including interest rates,
equity prices, foreign exchange rates and commodity prices), the correlations among them and their levels of
volatility. In our risk management processes we further distinguish market risk into:
— Trading market risk, which arises primarily through the market-making and trading activities in the various
cash and derivative markets.
— Nontrading market risk, which arises from assets and liabilities that are typically on our books for a longer
period of time (i.e. non-consolidated strategic investments, alternative asset investments, sight and saving
deposits, and equity compensation), but where the inherent value is still dependent on the movement of
financial markets and parameters. We include risk from the modeling of the duration of sight and saving
deposits and risk from our Deutsche Bank Bauspar business in nontrading market risk. In addition, we also
include equivalent risks that Postbank categorizes as business and collective risks, respectively.
Operational Risk
Operational risk is the potential for incurring losses in relation to employees, contractual specifications and
documentation, technology, infrastructure failure and disasters, external influences and customer relationships.
This definition includes legal and regulatory risk, but excludes business and reputational risk.
Liquidity Risk
Liquidity risk is the risk arising from our potential inability to meet all payment obligations when they come due
or only being able to meet these obligations at excessive costs.
Business Risk
Business risk describes the risk we assume due to potential changes in general business conditions, such as
our market environment, client behavior and technological progress. This can affect our results if we fail to
adjust quickly to these changing conditions.
Beyond the above risks, there are a number of further risks, such as reputational risk, insurance-specific risk
and concentration risk. They are substantially related to one or more of the above risk types.