entire - Deutsche Bank Annual Report 2012

Deutsche Bank 01 – Management Report 109
Financial Report 2010 Risk Report
In 2010, Treasury issued capital market instruments with a total value of approximately € 22.9 billion, € 3.9 billion
more than the original issuance plan.
For information regarding the maturity profile of our long-term debt, please refer to Note 30 “Long-Term Debt
and Trust Preferred Securities” of our consolidated financial statements.
Transfer Pricing
We operate a transfer pricing framework that applies to all businesses and ensures that pricing is made of (i)
assets in accordance with their underlying liquidity risk, (ii) liabilities in accordance with their funding maturity
and (iii) contingent liquidity exposures in accordance with the cost of providing for commensurate liquidity
reserves to fund unexpected cash requirements.
Within this transfer pricing framework we allocate funding and liquidity risk costs and benefits to the firm’s business
units and set financial incentives in line with the firm’s liquidity risk guidelines. Transfer prices are subject to
liquidity (term) premiums depending on market conditions. Liquidity premiums are set by Treasury and picked
up by a segregated liquidity account. The Treasury liquidity account is the aggregator of long-term liquidity
costs. The management and cost allocation of the liquidity account is the key variable for transfer pricing funding
costs within Deutsche Bank.
Stress Testing and Scenario Analysis
We use stress testing and scenario analysis to evaluate the impact of sudden stress events on our liquidity
position. The scenarios we apply have been based on historic events, such as the 1987 stock market crash,
the 1990 U.S. liquidity crunch and the September 2001 terrorist attacks, liquidity crisis case studies and hypothetical
events.
Also incorporated are the lessons learned from the latest financial markets crisis. They include the prolonged
term money-market and secured funding freeze, collateral repudiation, reduced fungibility of currencies, stranded
syndications as well as other systemic knock-on effects. The scenario types cover institution-specific events
(e.g. rating downgrade), market related events (e.g. systemic market risk) as well as a combination of both,
which links a systemic market shock with a multi-notch rating downgrade.
Under each of these scenarios we assume that all maturing loans to customers will need to be rolled over and
require funding whereas rollover of liabilities will be partially impaired resulting in a funding gap. In addition we
analyze the potential funding requirements from off-balance sheet commitments (e.g. drawings of credit facilities
and increased collateral requirements) which could materialize under stress. We then model the steps we would
take to counterbalance the resulting net shortfall in funding. Countermeasures would include the Group’s unencumbered
business asset inventory, the available long cash balance (over and above cash balances which
form an integral part of our existing clearing and settlement activities), as well as our strategic liquidity reserve.