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 172
— The Asset Management Risk unit within our Credit Risk Management function is specialized in risk-related
aspects of our asset and fund management business. Noteworthy risks in this area arise, for example, from
performance and/or principal guarantees and reputational risk related to managing client funds.
The consolidation of Postbank in December 2010 has resulted in a significant change in our equity risk profile
from nontrading activities. Previously an economic capital charge was calculated to our Strategic Investment
Portfolio purely based on the size of our minority stake. Since consolidation, economic capital for all risk categories
(credit risk, trading and nontrading market risk, operational risk and business risk) of the entire Postbank
is included in our reporting.
The majority of the interest rate and foreign exchange risks arising from Deutsche Bank’s nontrading asset and
liability positions, excluding Postbank, has been transferred through internal hedges to trading books within the
Corporate & Investment Bank and is thus reflected and managed through the value-at-risk numbers. Of the
remaining risks that have not been transferred through those hedges foreign exchange risk is mitigated through
match funding the investment in the same currency and only residual risk remains in the portfolios. For these
residual positions there is immaterial interest rate risk remaining from the mismatch between the funding term
and the expected maturity of the investment. In contrast to above approach, Postbank carries the majority of its
open interest rate risk in the banking book. While this interest rate position is material on a Postbank standalone
basis, the impact is immaterial when aggregated with Deutsche Bank's risk positions.
However, there is an important exception with respect to foreign exchange risk, which we refer to as structural
foreign exchange risk exposure. This exposure arises from capital and retained earnings in non Euro currencies
in certain subsidiaries, mainly U.S. and U.K. entities and represents the bulk of foreign exchange risk in our
nontrading portfolio.
In addition to the above risks, our Nontrading Market Risk Management function also has the mandate to monitor
and manage risks arising from our equity compensation plans and pension liabilities. It also manages risks
related to asset management activities, primarily resulting from guaranteed funds. Moreover, our PBC, GTB
and PWM businesses are subject to modeling risk with regard to client deposits. This risk materializes if client
behavior in response to interest rate movements deviates substantially from the historical norm.
The Capital and Risk Committee supervises our nontrading market risk exposures. Investment proposals for
strategic investments are analyzed by the Group Investment Committee. Depending on the size, any strategic
investment requires approval from the Group Investment Committee, the Management Board or the Supervisory
Board. The development of strategic investments is monitored by the Group Investment Committee on a regular
basis. Multiple members of the Capital and Risk Committee are also members of the Group Investment Committee,
ensuring a close link between both committees.
Assessment of Market Risk in Our Nontrading Portfolios
Due to the generally static nature of these positions we do not use value-at-risk to assess the market risk in our
nontrading portfolios. Rather, we assess the risk through the use of stress testing procedures that are particular
to each risk class and which consider, among other factors, large historically observed market moves and the
liquidity of each asset class as well as changes in client behavior in relation to deposit products. This assessment
forms the basis of our economic capital calculations which enable us to actively monitor and manage our nontrading
market risk. As of year-end 2009 several enhancements to the economic capital coverage across the
nontrading market risk portfolio were introduced. In 2010 the nontrading market risk economic capital coverage
has been completed with the addition of an economic capital charge for Deutsche Bank’s pension risks.