Further enhancements of the Basel framework („Basel IV“)

Concept Calibration TLAC: MREL: resolution plan (Pillar 2) Eligible instruments Excluded liabilities • Critical service Additional criteria • No preferential treatment Impact • All liabilities, if not • Covered deposits liab. • Not owed to the institution by national insolvency law common Pillar 1 Own Funds      • Secured liabilities • Tax and social Regulatory Capital Principles Mechanisms requirement explicitly excluded itself • Bail-in evidence for • Minimum ratio including regular reporting and disclosure Global (FSB)/G-SIB: 5. Assessment of size, • Fiduciary liab. • Loss-absorbing and recapitalization capacity • Conversion into equity 1. Loss absorption, 2. Recapitalisation of 3. Liabilities excluded from 4. Deposit guarantee 6. Size and systemic : • Additional criteria security • Not funded directly/ liabilities subject to third requirements TLAC Term Sheet business/funding model, • Institution and • Continuity of functions, orderly resolution • Write-down 18% of RWA especially by own funds non-resolvable business bail-in due to operative scheme contribution effects on the financial defined for MREL/ authorities liab. indirectly by the institution country law • Depending on resolution scenario, requirements on risk profile, based on system (operator) • Stability of financial system (2022) functions importance or difficult considered system TLAC (Art 44, • DGS liab. (MREL) • Remaining maturity of at • Not subject to set off/ group and solo level (BCBS 342, FSB, BRRD) SREP results 45 BRRD, TLAC liabilities < 7 days • Short term least one year netting rights (TLAC only) • Integration in capital planning processes; consideration Own Funds Common Additional TLAC/MREL Eligible • No recourse to tax money EU/all CRR institutions: + Capital buffers valuation Termsheet) • Employee liab. deposits (TLAC) • Does not arise from a of higher funding costs Tier 2 • Total Loss-absorbing Capacity MREL/BRRD Equity Tier 1 Tier 1 • Minimum requirement for own Liabilities derivative Bottom line: 6,75% of LR exposure (TLAC) / double LR requirement (MREL) Resolution fund access: 8% of total liability funds and eligible liabilities Criteria

Capital Requirements Max (Capital RequirementsIM ; Capital RequirementsSA x floor factor ) Capital Floors (BCBS 306, 362) Two alternatives possible: Risk-category based floor or overall floor

Credit Risk Investments in funds (BCBS 266) Trading-book definition (BCBS 352) (BCBS 355)

Banking Book Trading Book Standards for the Allocation of Instruments para.12–17 Trading desk para. 22–26, App. A The Standardised Measurement Approach (SMA) Exposure value for derivatives and off balance sheet positions Banking book Trading book Trading book Trading book • Defined group of traders or trading accounts (mandatory) (mandatory) (approved deviation possible) (instruments being held for • Well defined and documented business strategy mandatory reasons) • A clear structure Business Indicator (BI)5 = ILDC + SC + FC Off-balance sheet Per definiton • Approved by supervisor Standardised Approach (SA-CCR) (BCBS 279) Internal methods (IMM) Look-Through Approach (SA and IRB) items (SA) para. 64 ff • Equity investments in a fund in Instruments … • Equity investment with daily All instruments for one of the Interest, operating lease and dividend component (ILDC) = Min [|II – IE|, 0.035 x IEA] + |LI – LE| + DI Leverage which the cannot look- • Managed on a trading desk look-through following purposes, not listed Moving instruments between regulatory books para. 27–30 Modified Standardised Approach (IRB) + Adjustment Standardised Approach through daily • in the correlation trading • Listed equity before: EAD = 1.4 x (Replacement Cost + Potential Future Exposure) Direct credit substitutes 100% + CVA Services component (SC) = Max [OOI, OOE] + Max [|FI – FE|, Min{Max(FI, FE), 0.5 x uBI+0.1 x (Max (FI, FE) – 0.5 x uBI)}] Under consideration of wrong-way-risk • Unlisted equity portfolio • Accounting trading asset • Short-term resale • Compliance with bank’s policies • Giving rise to a net short • Approval by senior management and supervisor and CVA Mandate-Based Approach (SA and IRB) • Securitisation warehousing or liability • Profiting from short-term price Unmargined Transactions: (Variation margin is not exchanged) Other Commitments 50–75% • Retail and SME credit credit or equity position in • Market-making activities movements Financial component (FC) = |Net P&L on Trading Book| + |Net P&L on Banking Book| Internal Models RC = max{V – C; 0} aggregate the banking book Multiplier × AddOn Approach • Retail and Derivative • Traded repo-style • Locking in arbitrage profits Internal Risk Transfer para. 31–39 Short-term self-liq. trade letters 20% – Derivatives that have the above • Underwriting commitment transactions • Hedging risk that arise from II = Interest Income LE = Lease Expenses FI = Fee Income uBI = ILDC+Max(OOI;OOE)+Max(FI;FE)+FC Margined Transactions: (Variation margin is exchanged) Outsourcing Max (effective EPE; Fall-Back Approach (1,250%) instruments as underlying asset • Options the instruments mentioned • Only fromm BB to TB IE = Interest Expense DI = Dividend income FE = Fee Expenses ILDC = Interest, operating lease and dividend component (a) possible RC = max{V – C; TH + MTA – NICA; 0} ∑ AddOn for each asset class (a) effective EPE under Stress) • Hedging Positions above • credit/equity risk: only, when external hedge in TB IEA = Interest Earning Assets OOI = Other Operating Income uBI = unadjusted BI FC = Financial Component Retail commitments 10–20% LI = Lease Income OOE = Other Operating Expenses V = MTM value of the derivative transaction in a netting set C = Collateral Value per netting set, after haircut V – C TH = Threshold Amount related to collateral min {1; Floor + (1 – Floor) x exp ( 2 x (1 – Floor) x AddOnaggregate )} Buckets in the BI Component MTA = Minimum Transfer Amount related to collateral BI Range (€ Mln) 0–1,000 1,000–3,000 3,000–10,000 10,000–30,000 >30,000 NICA = Net Independent Collateral Amount Floor = 5% (BCBS 352) Buckets 1 2 3 4 5

•  should comply with minimum BI Component, if Bucket 1 (BCBS 347) loss data standards under Pillar 1. RWA under Standardised Approach Standardised Approach SMA Capital = Loss Component • Loss data calculations must be of 110 Mln + (BI Component – 110 Mln) x Ln exp (1) – 1 + , if Buckets 2 – 5 { ( BI Component ) good-quality and based on a 10-year observation period. Ratings not available/permitted1,2 Ratings available1 Financing secured by Real Estate (RE) para. 49 ff Total Capital Charge • In the transition period, good-quality Standardised Assessment Approach Loss Component External Credit Risk Assessment Approach (ECRA) = loss data of minimum 5 years may (SCRA) 7 x Average Total Annual Loss Other Real estate Income-Producing RE ADC + 7 x Average Total Annual Loss only including loss events above € 10 milion be used, until the number of years Rating AAA to AA– A+ to A– BBB+ to BBB– BB+ to B– Below B– Grade A Grade B Grade C Sensitivities based Approach + 5 x Average Total Annual Loss only including loss events above € 100 milion reaches 10. Operational req.3,4 met RW = 150% • Banks must have documented Eligibility Default Risk Residual Risk Add-on procedures and processes for the criteria (AAA- 0.11 x BI, if Bucket 1 0% LTV ≤ 40% 25% identification, collection and treatment MDB rating, capital Delta Risk Vega Risk Curvature Risk 110 Mln + 0.15 x (BI – 1,000 Mln), if Bucket 2 LTV 40%–60% 30% BI Component = of internal loss data. para. 10 ff etc.) are met: 410 Mln + 0.19 x (BI – 3,000 Mln), if Bucket 3 LTV 60%–80% 35% LTV ≤ 60% 70% 1,740 Mln + 0.23 x (BI – 10,000 Mln), if Bucket 4 • Banks should adhere to the criteria for Base RW 20% 50% 100% 150% 50% LTV 80%–90% 45% LTV 60%–80% 90% • Based on sensitivities of a bank’s trading book to delta risk • Based on sensitivities to regulatory vega risk factors • Measures the incremental non-linear risk which is not Captures jump-to-default-risk • Separately calculated for all 6,340 Mln + 0.29 x (BI – 30,000 Mln), if Bucket 5 building “SMA loss data set” LTV 90%–100% 55% LTV > 80 120% factors defined by the supervisor • Similar aggregation formula as for delta captured by the delta risk of an option (JtD-risk) instruments bearing residual { Banks Base RW 20% 50% 100% 150% 50% 100% 150% LTV > 100% RW cp Relevant Risk • Delta sensitivities are used as inputs in the aggregation • Curvature risk charge (CVR) is first calculated across risk 5 Banks must determine the three-year average of the BI, as the sum of the three-year average of its components.

Residential Classes para. 13 ff Short-term RW 20% 50% 150% 20% 50% 150% formula below instruments for each risk factor • Simple sum of gross notional Separate calculation of Operational requirements 3,4 not met • CVRs are then aggregated first within and then across amounts of the instruments General SME Inv. Grade JtD-risk of each instrument Corporates GIRR Instrument Aggregation buckets • RW = 1% for instruments with Sensitivity para. 31 ff Base RW 20% 50% 100% 150% 100% 85% 75% assignment to Risk factor Bucket across buckets an exotic underlying, 0.1% for “Risk that a bank may provide financial support to an entity beyond or in the absence Max. (100%; RW cp) 150% weighting risk classes and sensitivities aggregation within asset other instruments Step-in Risk (BCBS 349) of any contractual obligations, should the entity experience financial stress.” Obj./Com. fin. 20% 50% 100% 150% Object/Commodity finance 120% per bucket Operational requirements3,4 met CSR non-sec risk factors class Specific offsetting rules Specialized Relevant entities include e.g.: • MM funds and other investment funds Lending Contractual obligation RWA 20% 50% 100% 150% Pre-operational 150% • Mortgage or finance companies • Asset management companies para. 38 ff Project finance LTV ≤ 60% RWcp/60% LTV ≤ 60% 80% Bank Operational 100% LTV > 60% RW cp LTV 60%–80% 100% CSR sec CTP • Funding vehicles • Commercial entities providing critical LTV > 80% 130% Bucket allocation and Non-contractual obligation Step-in Risk • Securitisation vehicles services exclusively to the bank e.g.: (GIRR) weighting Equity 3,4 Book Trading 250% Sovereigns out of scope Defaulted para. 75 Commercial Operational requirements not met CSR sec nCTP para. 42 f Risk Risk WSk = RWksk classes factors Subordinated Identification of step-in risk Measurement of step-in risk 150% PSE out of scope RRE (not mat. dependant) 100% Other (secured) 100% RW cp 150% Hedge benefit recognition para. 44 0.00010.0001 and capital charge Equity aggregation RRE (other) 150% Other (unsecured) 150% 3 Operational requiremens for the treatment as secured by real estate: • Finished property Sponsorship Consolidation approach Conversion approach • Positions Sensitivities • Risk weights Risk position for bucket The risk charge is determined • Only for risk positions with explicit or embedded options Add-on risk weight due to currency mismatch • Legal enforceability General requirements: Retail para. 45 ff Other Assets para. 80 ff Commodity are grouped defined by (RW) defined by determined by aggregating from risk positions • Two stress scenarios per risk factor: upward and downward • When step-in would lead to Appropriate when step-in is not para. 62 f • Claims over the property • Sensitivities based Approach requires calculation of capital charge Decision- 4  together by supervisor supervisor weighted sensitivities for aggregated between the shock 1  accounting consolidation expected to result in accounting 50% Add-On Ability of the borrower to repay under three correlation scenarios, highest of which is the final Making 2 Financial Regulatory retail • Product criterion met? 75% Cash/gold 0% Lending curr. < > borrower curr. common • RW differ risk factors using buckets within each risk • The potential loss, after deduction of the delta risk positions, • Except where Basel rules consolidation once materialised • Low value of individual (Max 150%) • Prudent value of the property capital charge Support 3 Operations TB + BB characteristics between risk corresponding prescribed class is the outcome of the scenario inappropriate exposures? • Required documentation FX • Standardised approach capital charge is the sum of Sensitivities Other retail 100% Cash items in collection 20% No curr. mismatch No Add-On • Risk factors are classes and correlation • Granularity criterion met? based appr. capital charge, Default Risk charge and Residual Risk mapped to risk different risk Primary Indicators Secondary Indicators 1 classes factors Add-on (Additional) due diligence analysis required Other 100% 2 No fallback such as sovereign RWs intended • Capital ties • Branding • Upfront facilities • Investor base/expectations • Decision making • Purpose, originator interests

RWA under IRB-Approach (BCBS 362) Internal Models Approach

(BCBS 325, 362) PD LGD EAD/CCF Qual. Requirements Model approval process Total Capital Charge CVA Capital Charge Derivatives with counterparty default risk, SFT (fair value), exemptions for derivatives cleared through a QCCP • All derivative transactions that are subject to the risk that a counterparty could default Regulatory trading desk definition and nomination Modellable Risk Factors Non-modellable Risk Factors Default Risk Charge Sovereigns (under review) Risk Mitigation • SFTs that are fair-valued by a bank for accounting purposes • Protection by guarantees only as full • Exemption: Transactions cleared through a qualified CCP Uncollateralised Senior: 45% Overall Assessment Uncollateralised subordinated: 75% substitution approach Mandatory nomination Approval by Secured with receivables, CRE/RRE: 20% • No double default approach Aggregating capital Surcharges for risk Banks (including insurances) of reg. trading desks supervisors Expected Shortfall Using the reduced Adjusting for different Taking the possibility Basic CVA Framework (BA-CVA) Secured with other ph. Coll: 25% • No recognition of conditional guarantees requirements across factors with insufficient Supervisory provided as Risk Measure risk factor approach liquidity of risk factors of default into account FIRB (clarification will be provided) desks data Corporates (consolidated groups as • No internal estimation of haircuts Model evaluation on trading desk level Requirement: reported in financial statements) • First-to-default CDS only eligible under AIRB All banks without approval or unwilling to use the FRTB-CVA Framework · · • n-th-to default CDS not eligible Expected Shortfall at 97,5% Full ES may be calculated Liquidity horizons LH used Capital charge calculated • Stress scenarios used • A separate internal Assets > € 50 bn 1. B j quantile for a 10 days from using a to scale ES to the regulatory from desk level and • Different treatment of credit (two-factor) model to Input Parameter: Eligible Hedges: ESR,S ESi,B Min: 0.05% LGD P&L Individual risk factor RW Mitigation of Counterparty Credit Spread Risk only: 2. holding period representative set of risk liquidityadjusted Expected overall ES with a correlation and other risk factors capture default risk b(c) • Haircut for receivables, CRE/RRE = 50% B • Spervisory ES – S = x ∑M x EAD attribution analysis factors in stress period Shortfall : parameter of 0.5: • Default risk must be c NS NS • Single-Name CDS or single-Name Contingent CDS Assets ≤ € 50 bn/rev. > € 200 m QRRE revolvers: 0.1%) • No minimum level of required collateral (ESreg) р 1.4 Corp: Min. 25% measured using a •  (direct or indirect) • Gross-up requirement for non cash where standard deviation b(c) – supervisory risk bucket of counterparty c Secured: VaR-model •  • Index CDS Undrawn revolving commitment to RWb(c) – supervisory risk weight for risk bucket b Assets ≤ € 50 bn/rev. ≤ € 200 m QRRE: Financial: 0% exposures secured by any type of collateral extend credit, purchase assets or issue & • EAD – EAD of nettingset using SA-CCR or IMM Min. 50% Receivables: 15% • LGD for non-defaulted assets as long-run NS credit substitutes · • M – effective maturity of nettingset AIRB CRE or RRE: 15% average + add-on for downturn conditions Approval NS SA CCF < 100% on desk level Other retail: Other physical collateral: 20% No more exceptions than: Min. 30% Retail Mortg.: 10% Backtesting • 30 for the 97,5% quantile Non-approval Retail • 12 for 99% quantile Capital charge for exposure risk Requirements to be satisfied Requirements Standardised Approach · · exposure The for approved trading desks is the maximum of the previous day’s aggregate capital charge ( ) Equities CA CCt–1 + SESt–1 and the average of the previous 60 business days scaled by a multiplier ( ) ES mc · CCavg + SESavg

Capital requirement for counterparty credit spread risk Specialised lending (RWSM) Risk weight slotting method VaR_

• the capital requirements for approved trading desk ( , CA) The total aggregate capital charge for Market Risk (ACC) is • the charge for default risk (DRC) and FRTB-CVA Framework the sum of: • the charge for unapproved trading desk ( according to CU) the Standardized Approach for Market Risk Eligibility criteria: • Calculation of the Credit Spreads of illiquid counterparties • Calculation of CVA sensitivities to a minimum set of market risk factors • CVA desk responsible for risk management and hedging of CVA Securitisation Framework (BCBS 374) BB = Banking Book CSR non-sec = Credit spread excl. Securitisations TB = Trading Book CSR sec CTP = CSR sec correlation trading portfolio GIRR = General Interest Rate Risk CSR sec nCTP = CSR sec non-CTP SA-CVA IMA (eliminated by BCBS 362) • A given hierarchy of the approaches; SEC-IRBA para. 48 ff SEC-ERBA para. 65 ff SEC-SA para. 78 ff applicability of approach depends on Securitisation Internal Ratings-Based Approach Securitisation External Ratings-Based Approach Securitisation Standardised Approach FX = Foreign Exchange available data and permissibility in a jurisdiction • A supervisory formula (SF) approach for a securitisation Calculation of risk weights by means of external ratings, • SF approach to calculate cap. Req. for a sec. exp. to a SA pool • Caps for senior and originator positions exposure to an IRB pool seniority, thickness and maturity (M ) of the securitization • Only available approach for re-securitisations • Criteria for identification of “simple, T • Coverage of KIRB for at least 95% of the underlying portfolio tranche • Coverage of W for 100% of portfolio (special conditions apply transparent and comparable” (STC) required if W is unknown for < 5%) securitisations are classified in four categories: 1. Asset Risk RW 2. Structural Risk table . Disclosure (BCBS 356, 309, 368) IRRBB (BCBS 368) 3. Fiduciary and Servicer Risk RWtable = RW from table depending on rating and maturity General Provisions 4. Additional criteria for STC RW = RW after adjustment of maturities >1 table table Principles for banks

and< 5 years 1,250% RW Risk management, key Linkages between financial Composition of Capital and Macroprudential Supervisory Leverage ratio/ (by linear interpolation) Liquidity Credit Risk Counterparty credit risk Securitization/IRRBB Market Risk . prudential metrics and RWA Statements and exposures TLAC/Remuneration Measures Operational Risk Management of IRRBB and CSRBB Importance of IRRBB for all banks. Identification, measurement, • Key metrics of bank’s No requirements No requirements No requirements Leverage ratio Liquidity Coverage Ratio RWA flow statements of credit RWA flow statement of CCR No requirements RWA flow statements of market monitoring and controlling of IRRBB, monitoring and assessment of CSRBB A = Attachment Point D–A = T (Thickness) prudential regulatory • Summary comparison of risk exposures under IRB exposures under the Internal risk exposures under an IMA D = Detachment Point } situation (at consolidated accounting Model Method (IMM) Responsibility of governing body group level) assets vs leverage ratio Governing body responsible for oversight of IRRBB management KIRB = IRB capital charge of underlying pool • For nor-STC securitisations p=1, • For non-STC securitizations, factor x =1 in the calculation of p • Floor of 15% for non-STC securitizations • For re-securitisations p = 1,5 and floor of 100% • Key metrics – TLAC exposure measure framework and risk appetite (requirements at resolution • Leverage ratio disclosure A, B, C, D, E = parameters from look-up table • For STC securitizations, factor x = 0,5 • Floor of 10% for STC securitizations • For STC sec. p = 0,5 Quarterly group level) template Risk appetite for IRBB • Overview of RWA Risk appetite to be articulated in terms to economic value and earnings

• Hypothetical RWA calculated No requirements Capital, TLAC Geographical distribution of No requirements Net Stable Funding Ratio • Credit quality of assets; • Analysis of CCR exposures Securitisation • Market risk under Effect of shocks and stress-testing on EVE and NII according to STA as • Composition of regulatory credit exposures used in the • Changes in stock of by approach • Exposures in the banking standardised approach SA Measurement off IRRBB to be based on EVE and NII effects arising benchmarks to IRB modelled capital countercyclical capital buffer defaulted loans and debt • CVA capital charge book • Desks’ structure for banks from shock and stress scenarios RWA • Reconciliation regulatory securities; • STA: CCR exposures by • Exposures in the trading using market risk IMA • Hypothetical RWA calculated capital to balance sheet • CRM techniques – overview regulatory portfolio and risk book (tb) • Market risk IMA per desk Assumptions for modelling IRRBB according to the STA for • Main features of capital/other • STA: Credit risk exposure weights • Exposures in the banking • Market risk IMA per risk type Key modelling assumptions to be understood, conceptually sound credit risk (excluding TLACinstruments +CRM effects; Exposures • IRB: CCR exposure by book and associated and documented counterparty credit risk) at • TLAC disclosure for G-SIBs by asset classes and risk portfolio and PD scale regiulatory capital asset class level • Material subgroup entity weights • Composition of collateral for requirements – bank acting Date: – creditor ranking at legal • IRB: Credit risk exposures CRR exposures as originator or as sponsor Measurement systems including validation Use of accuate data, appropriate documentation, testing and controls. Semi-Annual entity level by portfolio and PD range; • Credit derivatives exposures • Exposures in the banking September 2016 • Resolution entity – credit Effect on RWA of CD in CRM • Exposures to central book, associated capital Use of comprehensive models including validation function that is ranking at legal entity level techniques; specialised counterparties requirements – bank acting independent from the development process lending and equities under as investor Global Basel IV Leader: the simple risk weight method Reporting of measurement outcomes Measurement outcomes to be reported to the governing body on a Martin Neisen regular basis Risk management approach • Diff. in scope of consolidation, Remuneration Disclosure on G-SIB indicators Operational risk management • General information about Qualitative disclosure related Securitisation • General qualitative disclosure E-mail: [email protected] of the bank mapping of fin. statements • Remuneration policy • General qualitative credit risk to counterparty credit risk • Qualitative disclosure requirements related to Disclosure of information on IRRBB with regulatory risk cat. • Remuneration awarded information about operational • Disclosure of the credit requirements related to market risk Information on the level of IRRBB exposure and practice for measuring • Sources for differences during the financial year risk management quality of assets securitisation exposures • Qualitative disclosures for and controlling to be published on a regular basis For further information and your national PwC contacts please visit: between reg. exp. and • Special payments • Historical losses used for • Qualitative disclosure banks using the IMA carrying values in financial • Deferred remuneration SMA calculation requirements related to the IRRBB IRRBB as part of ICAAP www.pwc.de/basel-iv-international-contacts statements • SMA – business indicators CRM techniques • Qualitative + quantitative Capital adequacy for IRRBB to be part of ICAAP, in line with risk appetite • Explanations of differences and • STA: Qualitative disclosures information of the risk mgmt. between accounting and subcomponents on banks’ use of external objectives and policies

Annually regulatory exposure amounts • Historical losses credit ratings concerning IRRBB • Prudential valuation • IRB: Qualitative disclosures • Impact of interest rate Principles for supervisors adjustments related to IRB models; shocks on their change in backtesting of PD per EVE and NII based on a set Collection of information on IRRBB portfolio of prescribed interest rate shock scenarios Mu Regular assessment of bank’s IRRBB © September 2016 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. All rights reserved. s te In this document, “PwC” refers to PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers r International Limited (PwCIL). Each member firm of PwCIL is Drafta separate and independent legal entity.