Deutsche Bank : Pillar 3 Report Q1 2021

Deutsche Bank

Pillar 3 Report

as  of March 31, 2021

Content

3	Regulatory framework
3	Introduction
3	Basel 3 and CRR / CRD

1. TLAC and European MREL (SRMR / BRRD)

1. ICAAP, ILAAP and SREP

1. Prudential measures for non-performing exposure
2. Measures in context of COVID-19 pandemic
3. Own funds

1. Disclosures under Article 473a CRR - Transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds
2. Capital requirements

1. Article 438 (c-f) CRR - Overview of capital requirements
2. Credit risk exposure and credit risk mitigation

in the internal-rating-based approach

9 Quantitative information on the use of the IRB approach

1. Article 438 (d) CRR - Development of credit risk RWA
2. Counterparty credit risk (CCR)

1. Article 438 (d) CRR - Development of CCR RWA
2. Market risk

11 Own funds requirements for market risk under the IMA

11 Article 455 (e) CRR - Regulatory capital requirements for market risk

13 List of tables

Deutsche Bank	Regulatory framework
Pillar 3 Report as of December 31, 2021	Basel 3 and CRR/CRD

Regulatory framework

Introduction

This Report provides Pillar 3 disclosures at the consolidated level of Deutsche Bank Group (the Group) as required by the global regulatory framework for capital and liquidity, established by the Basel Committee on Banking Supervision, also known as Basel 3. At the European level these are implemented in the disclosure requirements as provided in Part Eight of the "Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms" (Capital Requirements Regulation or "CRR") and the "Directive (EU) 2013/36 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms" (Capital Requirements Directive or "CRD") which have been further amended with subsequent Regulations and Directives. Germany implemented the CRD disclosure requirements into national law in Section 26a of the German Banking Act ("Kreditwesengesetz" or "KWG"). Further disclosure guidance has been provided by the European Banking Authority ("EBA") in its "Final Report on the Guidelines on Disclosure Requirements under Part Eight of Regulation (EU) No 575/2013" ("EBA Guideline", EBA/GL/2016/11, version 2*). The information provided in this Pillar 3 Report is unaudited.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

Basel 3 and CRR/CRD

In the European Union, the Basel 3 capital framework is implemented by the amended versions of CRR and CRD. As a single rulebook the CRR is directly applicable to credit institutions and investment firms in the European Union and provides the grounds for the determination of regulatory capital requirements, regulatory own funds, leverage and liquidity as well as other relevant requirements. In addition, the CRD was implemented into German law by means of further amendments to the KWG and the German Solvency Regulation (SolvV) and accompanying regulations. Jointly, these laws and regulations represent the regulatory framework applicable in Germany.

Regarding the regulatory minimum capital requirements the CRR/CRD lays the foundation for the calculation of risk weighted assets (RWA) for credit risk, including counterparty credit risk, credit valuation adjustments, market risk and operational risk.

In January 2019, Regulations (EU) 2017/2401 and 2017/2402 introduced changes to the methodology for determining RWAs for new securitizations originated on or after January 1, 2019. All securitization transactions originated before this date remained subject to the rules introduced by CRR/CRD as applicable until December 31, 2018 and are subject to the new framework from January 1, 2020 onwards.

In May 2019, Regulation (EU) 2019/876 and Directive (EU) 2019/878 introduced amendments to the CRR/CRD with various changes to the credit risk RWA framework becoming applicable in June 2021. These legal acts relate for example to the applicable risk weights for banking book investments in collective investment undertakings or the replacement of the mark-to- market method to determine the exposure value for derivatives that are not in scope of the internal model method by a new standardized approach to determine counterparty credit risk (SA-CCR).

As a reaction to the COVID-19 outbreak, certain legislative changes to the prudential framework have been made and are applicable since the June 30, 2020 reporting. Regulation (EU) 2020/866 increased the diversification benefit applicable to aggregate additional value adjustments from 50 % to 66 % until year end 2020. Regulation (EU) 2020/873 introduced various changes to the determination of risk weighted assets and the leverage exposure. For example the risk weights applicable to certain small or medium sized enterprises (SME) are reduced by applying scaling factors depending on the exposure value. With respect to the leverage exposure, for example cash receivables and cash payables are offset where the related regular- way sales and purchases are both settled on a delivery versus payment basis. In addition certain Euro-based exposures facing Eurosystem central banks may be excluded from the leverage exposure subject to having obtained permission from the European Central Bank. Based on Decision (EU) 2020/1306 of the European Central Bank, the Group was allowed for the first time in the September 30, 2020 reporting to exclude these exposures from the leverage exposure. This exclusion currently applies until June 27, 2021.

A further core element of the CRR/CRD framework is the development and maintenance of a high quality capital base which should primarily consist of Common Equity Tier 1 (CET 1) capital. The CET 1 minimum capital requirement applicable to the Group is 4.5 % of risk-weighted assets. In addition to this minimum capital requirement, various capital buffer requirements

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Deutsche Bank	Regulatory framework
Pillar 3 Report as of December 31, 2021	Basel 3 and CRR/CRD

were phased in starting 2016 and are fully effective from 2019 onwards. Since June 30, 2020, the Group applies the transitional arrangements in relation to IFRS 9 as provided in the current CRR/CRD for all CET1 measures.

Formerly, intangible assets had to be deducted from CET1 items. "Regulation (EU) 2019/876" and "Regulation (EU) 2020/873" state that certain software assets do not have to be deducted from CET1 items from the entry into force of the related regulatory technical standards. The related regulatory technical standard, the "Regulation (EU) 241/2014" was amended accordingly and entered into force on December 23, 2020. This amended regulatory technical standard was applied for the first time in our December 31, 2020 reporting. For such software assets the concept of a prudential amortization is introduced. The regulatory prudent value of these software assets is derived based on their initial IFRS carrying value and then amortized on a straight line basis down to zero. The maximum regulatory amortization period is three years, but if the IFRS amortization period is less (e.g. two years), then the regulatory amortization period will be the same. If the IFRS amortization period is longer than the prudential period, therefore resulting in the IFRS carrying value exceeding the regulatory prudent value, then the difference in value must be deducted from CET1 items. The regulatory prudent value no longer has to be deducted from CET1 items, it instead is subject to a 100% risk weight. The prudential amortization starts on the same date as when the IFRS amortization starts (i.e. when the software is ready for use). Whilst the software is in the development phase, the intangible asset capitalized under IFRS must be fully deducted from CET1 items. Once the software is ready for use, the value of the intangible asset that was fully deducted from CET 1 items is reinstated and amortized as described above.

We present in this report certain figures based on the CRR definition of own fund instruments on a "fully loaded" basis. We calculate such "fully loaded" figures excluding the transitional arrangements for own fund instruments as provided in the currently applicable CRR/CRD. For CET 1 instruments we do not make use of transitional provisions.

Transitional arrangements are applicable for Additional Tier 1 (AT1) and Tier 2 (T2) instruments. Capital instruments issued on or prior to December 31, 2011, that no longer qualify as AT1 or T2 instruments under the fully loaded CRR/CRD as currently applicable are subject to grandfathering rules during the transitional period and are being phased out from 2013 to 2022 with their recognition capped at 30 % in 2019, 20 % in 2020 and 10 % in 2021 (in relation to the portfolio eligible for grandfathering which was still in issue on December 31, 2012). The current CRR as applicable since June 27, 2019, provides further grandfathering rules for AT1 and T2 instruments issued prior to June 27, 2019. Thereunder, AT1 and T2 instruments issued through special purpose entities are grandfathered until December 31, 2021, and AT1 and T2 instruments that do not meet certain new requirements that apply since June 27, 2019 are grandfathered until June 26, 2025. Instruments issued under UK law which do not fulfill all CRR requirements after the UK has left the European Union are also excluded from our fully loaded definition. Our CET 1 and RWA figures show no difference between CRR/CRD as currently applicable and fully loaded CRR/CRD based on our definition of "fully loaded".

The CRR/CRD requires banks to calculate and disclose a regulatory leverage ratio that is generally based on the accounting value as the relevant exposure measure for assets. Specific regulatory exposure measures apply to derivatives and securities financing transactions as well as off balance sheet exposures and must be added to determine the total leverage exposure. With effect from June 2021 the leverage exposure measure will be modified, e.g. the exposure measure for derivatives is determined based on a new standardized approach for counterparty credit risk and a minimum leverage ratio requirement of 3 % is introduced. From January 1, 2023 an additional leverage ratio buffer requirement of 50 % of the applicable G-SIB buffer rate will apply. It is currently expected that this additional requirement will equal 0.75 %.

The CRR/CRD framework further defines liquidity standards. The Liquidity Coverage Ratio (LCR) aims to measure a bank's short-term resilience to a severe liquidity stress scenario during a stress period of 30 calendar days. Detailed rules for the calculation of the LCR are set out in the Commission Delegated Regulation 2015/61. The binding minimum liquidity coverage ratio is set to 100 % since 2018.

The Net Stable Funding Ratio (NSFR) requires banks to maintain a stable funding profile in relation to their on and off balance sheet exposures. The CRR/CRD requires banks to calculate and disclose certain items requiring and providing stable funding. With effect from June 2021 a minimum Net Stable Funding Ratio of 100 % will be introduced.

There are continuous improvements and additional regulatory guidance is provided with regard to the interpretations of the CRR/CRD rules and related binding Technical Standards are still in preparation or not yet available in their final version. Thus, we will continue to refine our assumptions and models in line with evolution of our as well as the industry's understanding and interpretation of the rules. Against this background, current CRR/CRD measures may not be comparable to previous expectations. Also, our CRR/CRD measures may not be comparable with similarly labeled measures used by our competitors as our competitors' assumptions and estimates regarding such implementation may differ from ours.

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Deutsche Bank	Regulatory framework
Pillar 3 Report as of December 31, 2021	Prudential measures for non performing exposure

TLAC and European MREL (SRMR/BRRD)

Global Systemically Important Institutions (G-SIIs) in Europe need to have at least 16 % plus the combined buffer requirement of their Risk Weighted Assets (RWA) or 3 % of their Leverage Ratio Exposure (LRE) as Total Loss Absorbing Capacity (TLAC). The requirement will increase to 18 % plus the combined buffer requirement of RWA or 3.75 % of LRE starting 2022.

Banks in the European Union are also required to meet at all times a minimum requirement for own funds and eligible liabilities ("MREL") which ensures that banks have sufficient loss absorbing capacity in resolution to avoid recourse to taxpayers' money. Relevant laws are the Single Resolution Mechanism Regulation ("SRMR") and the Bank Recovery and Resolution Directive ("BRRD") as implemented through the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz, "SAG").

MREL is determined by the competent resolution authorities for each supervised bank individually on a case-by-case basis, depending on the respective preferred resolution strategy. In the case of Deutsche Bank AG, MREL is determined by the Single Resolution Board ("SRB"). While there is no statutory minimum level of MREL, the SRM Regulation, BRRD and a delegated regulation set out criteria which the resolution authority must consider when determining the relevant required level of MREL. Guidance is provided through an MREL policy published annually by the SRB. Any binding MREL ratio determined by the SRB is communicated to Deutsche Bank via the German Federal Financial Supervisory Authority (BaFin).

As announced by the SRB the next update of Deutsche Bank AG's binding MREL and subordinated MREL requirement is expected in the first half of 2021 and will for the first time reflect the legal changes of the banking reform package via amendments to the Single Resolution Mechanism Regulation and the Bank Recovery and Resolution Directive provided in June 2019 with the publication of Regulation (EU) 2019/877 and Directive (EU) 2019/879. As a result the MREL and subordinated MREL requirement will no longer be expressed as a percentage of TLOF but as a percentage of Risk Weighted Assets (RWA) and Leverage Ratio Exposure (LRE).

Instruments which qualify for TLAC and MREL are own funds (Common Equity Tier 1, Additional Tier 1 and Tier 2) as well as certain eligible liabilities (mainly plain-vanilla unsecured bonds). Instruments qualifying for TLAC need to be fully subordinated to general creditor claims (e.g. senior non-preferred bonds) while this is not required for MREL (e.g. senior preferred bonds). Nevertheless, current and future MREL regulation allows the SRB to also set an additional "subordination" requirement within MREL (but separate from TLAC) against which only subordinated liabilities and own funds can be counted.

ICAAP, ILAAP and SREP

The lnternal Capital Adequacy Assessment Process ("ICAAP") as stipulated in Pillar 2 of Basel 3 requires banks to identify and assess risks, maintain sufficient capital to face these risks and apply appropriate risk management techniques to maintain adequate capitalization. Our Internal Liquidity Adequacy Assessment Process ("ILAAP") aims to ensure that sufficient levels of liquidity are maintained on an ongoing basis by identifying the key liquidity and funding risks to which the Group is exposed, by monitoring and measuring these risks, and by maintaining tools and resources to manage and mitigate these risks.

In accordance with Article 97 CRD supervisors regularly review, as part of the Supervisory Review and Evaluation Process ("SREP"), the arrangements, strategies, processes and mechanisms implemented by banks and evaluate: (a) risks to which the institution is or might be exposed; (b) risks the institution poses to the financial system; and (c) risks revealed by stress testing.

Prudential measures for non performing exposure

In April 2019 the EU published final regulations for a prudential backstop reserve for non-performing exposure (NPE), which will result in a Pillar 1 deduction from CET 1 capital when a minimum loss coverage requirement is not met. It is applied to exposures originated and defaulted after 26 April 2019.

In addition, in March 2018 the European Central Bank (ECB) published its "Addendum to the ECB Guidance to banks on non performing loans: supervisory expectations for prudential provisioning of non performing exposures" and in August 2019 its "Communication on supervisory coverage expectations for NPEs".

The ECB guidance is applicable to all newly defaulted loans after April 1, 2018 and, similar to the EU rules, it requires banks to take measures in case a minimum impairment coverage requirement is not met. Within the annual SREP discussions ECB may impose Pillar 2 measures on banks in case ECB is not confident with measure taken by the individual bank.

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