COMMERZBANK AKTIENGESELLSCHAFT

Group Financial Statements
344
288 Commerzbank Annual Report 2011
(80) Fair value of financial instruments
Determination of fair value
This note provides more information on the fair values of
financial instruments which are not recognised at fair value in
the balance sheet, but for which a fair value must be disclosed in
accordance with IFRS 7. For the financial instruments reported
in the balance sheet at fair value the accounting methodology is
set out in the accounting policies (Notes 2 to 30) and in the
sections “Measurement of financial instruments” and “Fair value
hierarchy” in Note 81.
The nominal value of financial instruments that fall due on a
daily basis is taken as their fair value. These instruments include
the cash reserve as well as overdrafts and demand deposits in
the claims on banks and customers or liabilities to banks and
customers items.
Market prices are not available for loans and deposits as
there are no organised markets in which these financial
instruments are traded. Fair value is determined for these
instruments by using recognised mathematical valuation
methods with current market parameters. A discounted cash
flow model is used for loans with parameters based on a riskfree
yield curve, credit spreads and a fixed premium to cover
liquidity spreads, administrative expenses and the cost of
capital. A risk-free yield curve is also used to determine the fair
value of liabilities, with Commerzbank Aktiengesellschaft’s own
credit spread and a premium for administrative costs being
incorporated separately. The model also uses market risk
premiums for mortgage Pfandbriefe, public-sector Pfandbriefe
and loans taken out by the Bank.
The fair value of securitised liabilities, subordinated liabilities
and hybrid capital is determined on the basis of available market
prices. A number of different factors, including current market
interest rates and the Group’s credit rating are taken into
account in determining fair value. If market prices are not
available, the fair values are determined on the basis of
mathematical valuation models (e.g. discounted cash flow or
option price models), which are in turn based on yield curves,
volatilities, own credit spreads etc. Particularly in cases where
the Bank has issued structured debt instruments, which are
measured at fair value, the Bank’s own credit spread is used in
determining fair value.