Banking Supervision and Regulation -

Deutsche Bank

Seminar Paper

Dmitrii, Enelda Tanushi, Faizan Shahid, Javier Gimenez, Kozma

Qirjazi, Leopoldo Murbach, and Mariam Gogilava
Matriculation Number: Dmitrii, Enelda, 2189167, Javier, 2192781,
2194756, and Mariam

Technische Hochschule Augsburg

University of Applied Sciences Augsburg

Examiner: Prof. Dr. Michael Feucht

 Abstract

The paper examines Deutsche Bank, one of the largest financial institutions globally, to
see how resilient it is to external shocks over a 25-year span. The global financial crisis
of 2008 highlighted the shortcomings of the banking sector and underlined the need of
resistance in the face of unforeseen events. The question of whether Deutsche Bank ef-
fectively got more stable is being scrutinized by carefully examining the bank’s reforms
internally, risk management strategies, regulatory developments, and its financial perfor-
mance throughout the specified time frame.

Keywords: Deutsche Bank, Basel frameworks, Risk Weighted Assets, Internal

Risk Management, Capital Analysis
Contents

1 Introduction 1

2 Methodology 3

3 Regulatory Framework Background 4

3.1 Basel I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Basel II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Basel III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Basel IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4 Deutsche Bank Overview 10

4.1 Deutsche Bank Background . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Deutsche Bank Overall Analysis . . . . . . . . . . . . . . . . . . . . . . . 10

5 Internal Risk Management Analysis 13

5.1 CAMELS Rating System . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 CAMELS Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2.1 C - Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2.2 A - Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2.3 M - Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2.4 E - Earnings Ability . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2.5 L - Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2.6 S - Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

6 Conclusion and Recommendations 30

List of Figures 32

Bibliography 34

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Chapter 1

Introduction

Over the past few decades, the banking sector has experienced substantial shifts
due to globalization, technology improvements, and changing regulatory environments.
The ability of banks to withstand external shocks, such as financial emergencies, eco-
nomic recessions, and worldwide conflicts, is a crucial component of these changes. In
this sense, resilience describes a bank’s capacity to endure difficult circumstances with-
out suffering a major operational interruption and serious consequences to their financial
stability. Following the global financial crisis of 2008, regulators, lawmakers, and stake-
holders worldwide placed a high priority on the resilience of financial institutions. The
crisis exposed vulnerabilities and shortcomings in the banking sector, requiring an in-
vestigation of risk management practices and the need for greater resistant to shocks.
Deutsche Bank, one of the largest financial institutions globally, encountered signifi-
cant challenges during that chaotic period. Given this, the purpose of this study is to
investigate if, over the past 25 years, Deutsche Bank’s ability to withstand exogenous
shocks has increased. Deutsche Bank, which has its headquarters in Germany, is a major
player in the global financial system and has branches around the globe. The institution
faced extremely volatile conditions during and after the global financial crisis, including
significant losses, high litigation costs, and damage to its brand and reputation. As a
result, Deutsche Bank has made substantial internal reforms, regulatory changes, and
transformations to strengthen its resiliency and procedures for risk management.

Considering the significance of Deutsche Bank as a worldwide investment com-

pany, Chapter 4 provides an overview of the firm’s history, highlighting its fundamental
values, unique characteristics, and ultimate growth into the institution that it is cur-
rently. Thus, the purpose of this section is to convey fundamental information about the
bank. Theoretically, Basel I to Basel IV regulatory framework and their progression are
explained in Chapter 3. Understanding the key aspects of the study and the findings in
the upcoming chapters depends on these framework of Basel.

The impact of new regulations will also be examined in this study. The most
current laws, Basel I through Basel IV, were designed to strengthen the stability and
resilience of the global banking system by enforcing stricter capital requirements, en-
hancing risk management practices, and encouraging transparency. By looking at how
successfully Deutsche Bank has responded to these regulatory changes and enhanced its
risk management skills, one may determine how resilient the bank has acted through
these regulations throughout the years. The Basel Committee on Banking Supervision
(BCBS) created the Basel Accords, which are global regulatory structures intended to

1
improve the stability and financial health of the world banking system. Over time, these
agreements have changed, including more extensive risk considerations and stricter cri-
teria with each version. When Basel I was first implemented in 1988, it was mainly
concerned with credit risk and set a minimum capital requirement. When Basel II was
put into effect in 2004, it brought a more thorough framework that took operational
and market risk into account. Basel III imposed new liquidity norms and dramati-
cally increased capital requirements in response to the 2008 financial crisis. The current
Basel IV regulations are designed to improve risk sensitivity and decrease variability in
risk-weighted assets (RWA) in order to further strengthen the resilience of the banking
industry.

Has Deutsche Bank become more resilient against exogenous shocks over the last
25 years? is the primary research issue this study seeks to answer. We will do a quantita-
tive and qualitative analysis of Deutsche Bank’s capital adequacy and liquidity condition,
which are vital elements of Pillar 1 of the Basel framework, in order to respond to this
concern. We will examine and explore developments in economic and regulatory capital,
both as a percentage of risk-weighted assets and in absolute terms, as well as short- and
long-term liquidity metrics like the Net Stable Funding Ratio (NSFR) and the Liquidity
Coverage Ratio (LCR).

Listed below are the research’s objectives:

1. To evaluate how Deutsche Bank’s capital adequacy has changed in re-

sponse to Basel I to Basel IV regulatory changes.

2. To evaluate how Deutsche Bank’s liquidity condition has changed and

its capacity to meet both short- and long-term demands.

3. To assess the resilience and financial stability of Deutsche Bank in the

face of significant exogenous shocks.
Chapter 2

Methodology

The methodology of the report followed several principles, the main one being the
use of reliable sources only. All the charts used in the report are the group’s own work,
created using the RStudio programming tool with the database extracted from Excel
based on the Deutsche Bank’s annual reports and financial statements, which can be
found by the reader at the following website: ”https://investor-relations.db.com/reports-
and-events/annual-reports/index#tab-container-1-2023-2022-1”. It is worth noting that
Deutsche Bank has made its reports available since 2007, where some data related to
the previous year of 2006 can also be found. On the other hand, as we are analyzing
various reports, combining a total of 16 annual reports from 2007 to 2023, it is possible
to observe some changes in formatting and methodologies that Deutsche Bank made
during that period. The change in formatting is not detrimental to the group. However,
when the methodology used by the company is altered, some unexpected changes in the
data may occur, which can confuse the reader. Therefore, this issue will be addressed
below.

These differences can be primarily observed in the Capital Ratio, due to factors
such as changes in Basel regulation regarding their reporting. For instance, numbers pre-
sented for 2013 and prior years are based on ’Basel 2.5’, with the caveat that transitional
items pursuant to the former Section 64h (3) of the German Banking Act were excluded
until 2013. The capital ratios relate the respective capital to risk-weighted assets. Num-
bers presented for 2014 onwards are based on the transitional rules (’CRR/CRD 4’) and
the full application (’CRR/CRD 4 fully loaded’) of the CRR/CRD 4 framework. For
our report, we used the figures indicated by the full application (’CRR/CRD 4 fully
loaded’) of the CRR/CRD 4 framework. Other changes are more subtle, such as prior
to 2013, Deutsche Bank included cash along with due from banks in its assets. This was
altered to cash combined with central bank balances, which continue to be reported in
this manner to this day. Any other changes will be addressed throughout the report.

Our Excel database comprises six different spreadsheets containing all the data
deemed relevant by the group for the report. The name of each spreadsheet are: Net
Income, Assets, Liability + Equity, Leverage + Liquidity, Value-at-Risk, and Capital
Ratio. On the other hand, to create the charts for our group in RStudio, we used
the following packages: patchwork, quantmod, ggplot2, tidyr, readxl, and dplyr. The
complete code, as well as the Excel database, will be attached along with this report.

3
Chapter 3

Regulatory Framework Background

The central bank governors of the G10 nations formed the Basel Committee at
the close of 1974 in response to significant disruptions in the global currency and bank-
ing markets, most notably the collapse of Bankhaus Herstatt in West Germany. The
committee was first known as the Committee on Banking Regulations and Supervisory
Practices (BIS, 2024) [10].

The Committee was founded to improve global banking supervision standards and
to provide a platform for frequent member-country collaboration on banking supervisory
issues. Its headquarters are located at the Basel Bank for International Settlements.
Following its inaugural meeting in February 1975, the Committee has met three or
four times a year on average ever since. Beginning with the Basel Concordat, which
was first published in 1975 and has since undergone multiple revisions, the Committee
has established a number of international standards for the regulation of banks. Of
particular note are its groundbreaking publications of the capital adequacy accords,
which are referred to as Basel I, Basel II, and, most recently, Basel III (BIS, 2024) [10].
An addendum to the 1983 Concordat was released in April of 1990. Enhancing the cross-
border flow of prudential information between banking supervisors was the goal of this
addendum, Exchanges of information between regulators of participants in the financial
markets. A few of the Concordat’s tenets were revised and released as the Minimum
requirements for the oversight of global banking organizations and their cross-border
businesses in July 1992. Other supervisory bodies that oversee banks were informed
about these guidelines and invited to support them.

A joint working group of supervisors from non-G10 jurisdictions and offshore cen-
ters produced a study on the supervision of cross-border banking, which was published
by the Committee in October 1996.

3.1 Basel I

Basel I refers to a set of international banking regulations established by the Basel

Committee on Banking Supervision (BCBS) in 1988. Its principal objective is to estab-
lish minimum capital standards that financial institutions can use to reduce credit risk.

4
Specifically, it mandates that internationally operating banks keep a minimum capital
ratio of 8%, which is determined by their risk-weighted assets (BIS, 2024) [9] Basel I’s
history begins with the BCBS’s establishment in 1974. The committee was established
as a global platform for collaboration on issues related to banking supervision. Basel I
was introduced in 1988 with the intention of improving banking supervision in order to
increase global financial stability. Banks have to adhere to the 8 percent minimum cap-
ital ratio by the end of 1992. Banks in the G10 nations with sizable overseas operations
had complied with these standards by September 1993. The paradigm was adopted by
nations other than BCBS members, influencing banking practices globally.

The primary benefit of Basel I was its role in standardizing banking regulations in-
ternationally, thereby reducing risks to consumers, financial institutions, and the broader
economy. This standardization established a foundational approach to risk management,
influencing subsequent accords and banking regulations. By providing a common stan-
dard, Basel I helped create a more stable and secure global banking environment.

The Basel I framework primarily focused on the constituents of capital, dividing

it into two tiers: core capital (tier 1) and supplementary capital (tier 2). Core capital,
considered the key element of a bank’s capital, comprised equity capital and disclosed
reserves, such as fully paid ordinary shares and non-cumulative perpetual preferred stock.
This emphasis on core capital was due to its visibility in published accounts and its
importance in market judgments of capital adequacy. The framework required at least
50 percent of a bank’s capital base to consist of core capital, reflecting its crucial role in
maintaining profit margins and a bank’s competitive ability.

Supplementary capital included undisclosed reserves, revaluation reserves, general

provisions or general loan-loss reserves, hybrid debt capital instruments, and subordi-
nated term debt. Undisclosed reserves, although recognized by supervisory authorities,
were excluded from core capital due to their lack of transparency. Revaluation reserves
from the revaluation of assets could be included in tier 2, provided they were prudently
valued. General provisions, created against the possibility of future losses, were also
part of supplementary capital if they were not earmarked for specific impaired assets.
Hybrid debt capital instruments and subordinated term debt had specific conditions
for inclusion, reflecting their varying degrees of equity-like characteristics and ability to
absorb losses. The Basel I framework also outlined deductions from capital for items
such as goodwill and investments in unconsolidated subsidiaries engaged in banking and
financial activities. These deductions were essential to prevent the multiple use of the
same capital resources in different parts of a banking group.

In addition to defining capital, Basel I introduced a risk-weighted approach to

assessing capital adequacy, which linked capital to different categories of assets or off-
balance-sheet exposures weighted according to their relative riskiness. This method
allowed for a fairer basis for international comparisons and incorporated off-balance-sheet
exposures more easily. The risk weights ranged from 0 percent to 100 percent, applied
to categories like central government claims, interbank claims, non-central government
public sector entities, and loans secured by residential property. Basel I recognized the
importance of collateral and guarantees in reducing credit risk. Loans secured against
cash or securities issued by OECD central governments were given favorable risk weights,
and loans guaranteed by OECD entities received the guarantor’s weight. Additionally,
off-balance-sheet items were converted to credit risk equivalents using credit conversion
factors, which were then weighted according to the counterparty’s nature (BIS, 1988) [5].

However, Basel I also faced significant criticism. Some argued that it hindered
bank activities and economic growth by limiting the capital available for lending. On
the other hand, some critics felt that Basel I did not go far enough in preventing financial
crises. This criticism was particularly evident following the 2007-2009 financial crisis,
which Basel I failed to avert. The shortcomings of Basel I led to the development of
Basel II and later Basel III, which aimed to address these deficiencies (BIS, 1988) [5].

However, Basel I also faced significant criticism. Some argued that it hindered
bank activities and economic growth by limiting the capital available for lending. On
the other hand, some critics felt that Basel I did not go far enough in preventing financial
crises. This criticism was particularly evident following the 2007-2009 financial crisis,
which Basel I failed to avert. The shortcomings of Basel I led to the development of
Basel II and later Basel III, which aimed to address these deficiencies (MJIL, 2018) [20].

Basel I introduced a classification system for bank assets, grouping them into five
risk categories with corresponding risk weights: 0 percent, 10 percent, 20 percent, 50
percent, and 100 percent. Banks are required to maintain Tier 1 and Tier 2 capital
equivalent to at least 8 percent of their risk-weighted assets. Tier 1 capital is highly
liquid, while Tier 2 includes less liquid assets and reserves. This system was designed to
ensure that banks held sufficient capital to meet their obligations and absorb potential
losses. The legacy of Basel I lies in its establishment of the first international standard
for banking capital requirements. It set the stage for ongoing adjustments in banking
regulations, leading to the more refined frameworks of Basel II, Basel III and Basel 4.

3.2 Basel II

Basel II, a capital adequacy framework developed between 1999 and 2006, aimed
to bolster the security and soundness of the international financial system. It sought
to align capital requirements for banks more closely with economic risk, incorporating
advancements in financial markets and institutional risk management (Federal Ministry
of Finance, 2024) [15].

The Basel II framework is structured around three pillars. The first pillar focuses
on minimum capital requirements, stipulating that banks must maintain a capital ratio
of at least 8 percent of equity relative to risk-weighted assets. This pillar also emphasizes
the need to consider operational risks alongside credit and market risks (Federal Ministry
of Finance, 2024) [15].

The second pillar introduces a supervisory review process aimed at ensuring banks
have robust internal risk management systems. Regular audits by banking supervisors
are mandated to verify accurate risk assessment, appropriate provisioning, and adequate
capital corresponding to the bank’s risk profile (Federal Ministry of Finance, 2024) [15].

The third pillar promotes market discipline through enhanced disclosure. Banks
are required to increase transparency in financial statements, quarterly reports, and
management reports. This heightened transparency aims to provide market participants
with better insights into a bank’s risk profile and capital adequacy (Federal Ministry of
Finance, 2024) [15].

Basel II was adopted by the Basel Committee on Banking Supervision in June 2004
with the goal of enhancing the safety and reliability of the financial system, promoting
competitive equality, and improving risk capture. The Basel Committee, established in
1975, comprises representatives from banking supervisory authorities and central banks
of major industrial nations. While it functions as an advisory body, its recommendations
inform EU legislation and national laws of member states (Federal Ministry of Finance,
2024) [15]. In 2006, Germany enacted legislation implementing Basel II, effective Jan-
uary 1, 2007. Notably, this legislation required lenders to individually assess corporate
creditworthiness using rating systems before extending credit. Basel II addressed de-
ficiencies in pre-existing capital requirements that no longer accurately reflected the
evolving banking landscape.

However, the global financial crisis of 2007/2008 exposed weaknesses in the Basel
II framework. This led to the development of Basel III, which aimed to rectify these
shortcomings and further strengthen the stability and resilience of the international
banking system.

3.3 Basel III

In reaction to the global financial crisis of 2008, the Basel Committee on Bank-
ing Supervision (BCBS) created Basel III as a regulatory framework. This framework
builds on and improves upon the previous Basel II framework by addressing leverage
ratios, capital requirements, and liquidity criteria. Basel III attempts to fix the serious
weaknesses the crisis revealed in order to fortify the world banking system against future
financial shocks.

Significant flaws in the banking sector, including excessive leverage, a lack of high-
quality capital, and insufficient liquidity buffers, were exposed by the 2008 financial crisis.
It also emphasized how systemically important financial institutions are interrelated and
pro-cyclical. Furthermore, a lot of banks had subpar risk management and corporate
governance, and the regulatory framework was unable to handle the complexity of today’s
financial markets. (Moody’s Analytics, 2011) [21].

Enhancing the caliber and transparency of the capital that banks hold is one of
Basel III’s main goals. This is accomplished via a number of significant improvements.
First and foremost, Basel III underscores the significance of superior capital, with a
particular emphasis on Common Equity Tier 1 (CET1) capital. Basel III is centered on
establishing Capital Adequacy conditions, which encompass the 3-Pillar Framework and
Liquidity Requirements (BIS, 2023) [8].

- Pillar I: Minimum Capital Requirements represents a significant enhancement

over Basel I, reinforcing capital requirements. Unlike Basel II, Basel III focuses on four
distinct aspects within the Minimum Capital Requirements. The Capital Conservation
Buffer is designed to absorb potential losses during periods of financial and economic
stress. Financial institutions must maintain a 2.5 percent buffer of common equity in
addition to the existing 4.5 percent common equity requirement, culminating in a total
common equity requirement of 7 percent. This buffer must be exclusively met with com-
mon equity, and failure to comply may result in restrictions on dividend payouts, share
buybacks, and bonuses. The Countercyclical Capital Buffer, ranging between 0 percent
and 2.5 percent of common equity or other fully loss-absorbing capital, is implemented
based on national circumstances and serves as an extension to the capital conservation
buffer. The minimum Common Equity Tier 1 requirement has been increased from 2
percent to 4.5 percent. While the Minimum Total Capital Ratio remains at 8 percent,
the addition of the capital conservation buffer requires financial institutions to hold a
total capital of 10.5 percent of risk-weighted assets, with 8.5 percent being Tier 1 capital.
Tier 2 capital instruments are standardized (BIS, 2023) [8].

- Pillar II: Supervisory Review Process delineates the supervisory process for
banks, with Basel III incorporating the same requirements outlined in Basel II, albeit
with adjustments regarding the use of standardized approaches. Recommendations on
Interest Rate Risk in the Banking Book (IRRBB) include strengthening controls and
disclosure requirements, as well as introducing a stricter threshold for identifying outlier
banks (BIS, 2017) [7].

- Pillar III: Market Discipline builds on the requirements described in Basel II

by introducing additional disclosure requirements related to liquidity, interest rate, and
securitization risks. It mandates qualitative disclosures on corporate governance, risk
management practices, and internal controls. Compliance with these requirements pro-
motes market discipline, ensuring transparency in banking activities, providing investors
with essential information for making investment decisions, and holding banks account-
able for the risks they take and their outcomes (BIS, 2017) [7].

To mitigate systemic risk during economic downturns and other crises, Basel III
introduces rules and standards to ensure banks maintain adequate reserves. This is
achieved through two key ratios: the Liquidity Coverage Ratio (LCR) and the Net
Stable Funding Ratio (NSFR). Supervisors utilize common intra-day and longer-term
monitoring indicators as part of a comprehensive liquidity management framework to
effectively identify liquidity risks in banks and the broader financial system (BIS, 2013)
[6].

The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient reserves
of High-Quality Liquid Assets (HQLA) that can be easily converted into cash during
liquidity shocks. The objective of the LCR is to ensure sufficient liquidity over a 30-day
stress period. To meet LCR requirements, banks must hold enough HQLA to cover their
total 30-day stressed cash outflows. These assets must be readily available and carry
low default risk (BIS, 2013) [6].

The Net Stable Funding Ratio (NSFR) encourages banks to favor stable funding
methods over temporary ones for their operations. It requires banks to maintain a stable
funding profile over a one-year period. The NSFR measures the amount of stable funding
in relation to the long-term liabilities and assets of a financial institution. Key elements
of stable funding include equity, deposits, and long-term loans. The NSFR imposes
higher costs for short-term funding options, such as commercial paper and interbank
loans. To comply, banks must maintain at least a 100 percent ratio of stable funding to
long-term assets and liabilities, ensuring that long-term liabilities are covered by stable
funding sources (BIS, 2013) [6].

One of the main objectives of the Basel III Liquidity Framework is to ensure
banks maintain a significant level of liquid assets while reducing reliance on volatile cap-
ital sources, such as short-term debt instruments. This approach aims to decrease the
likelihood of bank failures during financial system stress. Banks are required to main-
tain HQLA and stable funds in accordance with the standards set out in the Liquidity
Framework (BIS, 2013) [6].

3.4 Basel IV

Basel IV, also known as Basel 3.1, is a substantial update to Basel III that seeks
to address the deficiencies in the banking industry that were exposed during the 2007
financial crisis. Due to poor governance and risk management, high leverage, insufficient
liquidity buffers, and mispricing of credit and liquidity risks, the crisis exposed excessive
loan expansion. In response, the Basel Committee strengthened the Basel II capital
framework by releasing a number of revisions beginning in 2009. Higher worldwide
minimum capital requirements for commercial banks were declared by the Group of
Governors and Heads of Supervision (GHOS) by 2010, and this led to the Basel III
reform package (Investopia, 2023) [17].

In 2017, even before Basel III was fully implemented, the Basel Committee in-
troduced further changes, collectively referred to as Basel IV. These changes were so
extensive that they essentially constituted a new framework. Basel IV aims to enhance
the resilience of the banking sector by addressing significant variations in banks’ calcu-
lations of risk-weighted assets (RWAs). A key aspect of Basel IV is the restriction on
banks’ use of advanced internal risk models, particularly for large corporates, and the
introduction of an output floor ensuring that a bank’s internal RWA calculations
cannot be less than 72.5% of the standardized approach (Investopia, 2023) [17].

Basel IV is divided into two main packages. The first package includes the Fun-
damental Review of the Trading Book (FRTB), Counterparty Credit Risk, Net Stable
Funding Ratio (NSFR), leverage ratio, large exposure, market risk, and the Intermediate
EU parent undertaking. The second package addresses credit risk through standardized
and internal models, credit risk mitigation techniques, market risk, operational risk, out-
put floors, sustainability, and Credit Valuation Adjustment (CVA) risk. Initially, Basel
IV was scheduled to start on January 1, 2022, with full implementation by January
2025. However, the global pandemic has led to delays, pushing the initial implementa-
tion date to January 1, 2023, with potential further extensions and modifications likely
(Investopia, 2023) [17].
Chapter 4

Deutsche Bank Overview

4.1 Deutsche Bank Background

4.2 Deutsche Bank Overall Analysis

Now let’s move on to our company analysis chapter, where we’ll dive into the vari-
ous graphs and give a little explanation on each one. To create most of our visualizations,
our team created an Excel spreadsheet with the data on which the charts are built. We
have attached this spreadsheet in the attachments. A listing of each visualization will
also be provided

Figure 4.1: Adjusted Close Prices of DBK.DE and EXS1.DE

Source: Yahoo Finance, 2024

10
 The graph above shows the adjusted closing prices of Deutsche Bank Shares
(DBK.DE) and the iShares Core DAX UCITS ETF (EXS1.DE) for the period from
2008 to 2024. This graph shows the evolution of the closing prices of the two finan-
cial instruments, which allows a comparative analysis of their performance. The blue
line represents the adjusted closing prices of Deutsche Bank Shares (DBK.DE) and the
red line represents the adjusted closing prices of the iShares Core DAX UCITS ETF
(EXS1.DE).

The chart shows that the closing prices of the iShares Core DAX UCITS ETF
(EXS1.DE) exhibit a general uptrend throughout the entire observation period, with
periodic fluctuations particularly noticeable between 2015 and 2020. In 2024, prices
reach their historical highs. At the same time, Deutsche Bank (DBK.DE) share prices
show a much more volatile behavior, with pronounced dips and rises. There is a general
decline from 2008 to 2016, with lows in the period around 2016. This is followed by a
slight increase and stabilization in the following years, with some positive changes visible
closer to 2024. This chart is useful for analyzing long-term trends and volatility of the
mentioned financial instruments, as well as for identifying possible correlations between
them.

Figure 4.2: Evolution of Deutsche Bank Equity

Source: Deutsche Bank, 2024 [12]

Let’s move on to the next graph, which shows the evolution of Deutsche Bank’s
capital from 2006 to 2023.

The graph starts from 2006, when Deutsche Bank’s capital amounted to 33475
million euros. In the following years, there are significant fluctuations. For example,
in 2007 the capital increased to 38466 million euros and in 2008 it fell to 31914 million
euros. This period coincides with the global financial crisis, when many banks and
financial institutions faced significant liquidity problems and bankruptcies.
 In 2009, the company’s capital increased to 50398 million euros. This increase was
due to stabilization measures taken by governments and central banks, as well as the
bank’s own efforts to strengthen its capital.

Between 2010 and 2013, capital remained relatively stable, fluctuating between
54660 and 54968 million euros. However, in 2014 there was a significant increase to
73223 million euros, the highest value in the entire period under review.

In 2015, capital decreased to 67624 million euros and in 2016 to 64819 million euros.
These years were characterized by low interest rates in Europe, which put pressure on
the profitability of the banking sector. There are also possible costs related to legal
issues and fines, which may also have affected capital.

In 2020, capital amounted to 62196 million euros, which could be related to the
economic impact of the COVID-19 pandemic, and then began a gradual increase, reach-
ing 68031 million euros in 2021 and 73228 million euros in 2022. In 2023, capital reached
74818 million euros, the second highest value for the entire period. This growth reflects
the successful recovery from the pandemic, improved economic conditions, and the bank’s
internal reforms and strategies to improve resilience and efficiency.

This chart is useful for analyzing Deutsche Bank’s long-term capital trends, iden-
tifying key points of change and their correlation with external economic events and
internal corporate decisions.
Chapter 5

Internal Risk Management Analysis

5.1 CAMELS Rating System

5.2 CAMELS Analysis

5.2.1 C - Capital Adequacy

Figure 5.1: Evolution of Deutsche Bank Regulatory Capital

Source: Deutsche Bank, 2024 [12]

This graph shows the evolution of Deutsche Bank’s regulatory capital from 2006
to 2023. This graph shows the changes in Tier 1 capital (Tier 1), Tier 2 capital (Tier
2) and Total capital (Total) in millions of euros. This allows us to analyze in detail the
composition and dynamics of the bank’s capital in different years.

13
 Having considered this graph in detail, the following conclusions can be drawn: -
Tier 1 capital (Tier 1) remained relatively stable, with gradual growth throughout the
period - Tier 2 capital has shown greater fluctuations, with peaks in the middle of the
period and declines in recent years. - Total capital (Total) also varied, peaking in the
mid-2010s and increasing again by 2023.

This graph is useful for analyzing the stability and resilience of a bank’s capital,
as well as for understanding how the different components of capital interact with each
other and respond to internal and external economic conditions.

Figure 5.2: Evolution of Deutsche Bank Regulatory Capital Ratios

Source: Deutsche Bank, 2024 [12]

The other graph presents information on the evolution of Deutsche Bank’s regu-
latory capital ratios for the period from 2006 to 2023, also for three key indicators, as
in the previous graph. These ratios are expressed as percentages and allow us to assess
the financial strength of the bank.

This graph demonstrates that Deutsche Bank’s regulatory capital ratios show a
steady increase throughout the period. The highest growth was seen in the early 2010s,
which can be attributed to the bank’s efforts to strengthen its financial strength and
comply with the regulatory requirements imposed after the 2008 financial crisis. The
indicators have remained stable at a high level in recent years, indicating a continued
improvement in the bank’s financial position.

5.2.2 A - Assets

This graph shows the evolution of Deutsche Bank’s assets from 2006 to 2023. The
graph allows us to see the distribution of the different types of assets and their evolution
 Figure 5.3: Evolution of Deutsche Bank Assets
Source: Deutsche Bank, 2024 [12]

Figure 5.4: Evolution of Deutsche Bank Regulatory Liabilities

Source: Deutsche Bank, 2024 [12]
over the period indicated.

We considered the following components, presented in millions of euros: - Cash

and central bank balances - Cash and due from banks - CB funds sold and securities
purchased under resale agreements - Financial assets at fair value through profit or loss
- Loans - Other assets

There are two interesting points from the chart that can be emphasized.

1) Peak assets in 2008. In 2008, Deutsche Bank’s total assets peaked at 2204223
million euros. This period coincides with the global financial crisis. The increase in
assets in 2008 can be attributed to various factors such as increased liquidity and balance
sheet assets in response to market volatility. Banks may have increased their assets by
acquiring safer or assets requiring recapitalization to stabilize their financial positions.
This peak is important for understanding how financial institutions adapt and respond
to crisis situations and can serve as an indicator of how banks manage their assets in
the face of economic uncertainty.

2) Asset decline and stabilization after 2016. After a significant decline in assets
in 2016 to 1590646 million, Deutsche Bank’s assets have started to gradually stabilize,
holding within a range of around 1300000 million in recent years. This period may reflect
strategic changes in the bank’s asset management, including possible risk reduction and
balance sheet optimization. The decline in assets may be related to the sale of non-core or
high-risk assets, as well as efforts to improve the quality of the loan portfolio and liquidity.
Asset stabilization indicates a more conservative approach to asset management, which
is important for the bank’s long-term financial strength.

These two points highlight how external economic events and internal strategic
decisions affect the structure and volume of a bank’s assets, providing important insights
for analyzing its financial health and soundness.

The second graph in this chapter shows the evolution of Deutsche Bank’s liabilities
over the period from 2006 to 2023. The graph shows the distribution of the different
types of liabilities and their evolution over the period.

The components considered here are: - Deposits - Financial liabilities at fair value
through profit or loss - Long Term Debt - Other Liabilities

As in the analysis of the previous chart, here we see a peak in liabilities in 2008
and a subsequent decline and stabilization of liabilities since 2015.

This chart provides valuable data for our analysis of Deutsche Bank, as it is useful
for understanding the bank’s strategy in managing its liabilities and financial strength
over different economic cycles.

Asset quality is a significant factor influencing a bank’s financial health and general
stability. It directly affects bank profitability, risk management, and economic stability
(Qureshi et al., 2023) [22]. The concept of asset quality in banks is largely concerned with
the quality of loans granted. Asset quality is critical to banks because it directly affects
profitability and operational efficiency. High asset quality indicates that the majority
of a bank’s loans are being returned on time, which contributes to consistent cash flows
and profitability. In contrast, inadequate asset quality diminishes profitability and can
cause considerable financial strain (Kadioglu et al., 2017) [18].

For banks, maintaining high asset quality is crucial for several reasons:

1. Profitability: Banks’ profitability is heavily determined by the quality of their

assets. Poor asset quality reduces interest revenue and increases provisioning for bad
debts, resulting in lower overall profitability (Berger & DeYoung, 1997) [3].
2. Risk management: Asset quality influences a bank’s risk profile. High non-
performing loans raise the danger of default and financial instability, prompting banks
to improve risk management and strengthen capital reserves (Kadiuglu et al., 2017) [18].
3. Economic stability is largely dependent on the banking industry. Poor asset qual-
ity can cause a credit crisis, in which banks are unable to lend, constraining economic
growth (Berger & DeYoung, 1997) [3].

Given the importance of asset quality to bank profitability and economic stability,
numerous national and international regulatory authorities have developed frameworks
for monitoring and improving asset quality. The Basel Committee on Banking Super-
vision (BCBS) has implemented procedures under Basel I, II, and III frameworks to
improve asset quality, including risk management and capital adequacy requirements.
In the US, the Federal Reserve’s ”Standards for Safety and Soundness” requires frequent
asset quality reporting to ensure banks maintain high standards in loan distribution and
management. The European Union has embraced the Basel criteria through capital ad-
equacy directives to promote financial stability and asset quality among member states.

Focusing on our bank now, Deutsche Bank’s asset quality and management have
been major topics in its strategy and operational frameworks, showing the bank’s ded-
ication to maintaining a strong and resilient financial position. This analysis focuses
on Deutsche Bank’s theoretical approach to asset quality and management, excluding
precise numerical specifics and highlighting the conceptual and strategic foundations
presented in the company’s 2023 annual report.
Asset quality refers to the condition of a bank’s financial assets, which include loans, in-
vestments, and other receivables. Maintaining good asset quality is critical to Deutsche
Bank’s risk management and financial stability. The bank’s approach to asset qual-
ity is complex, including rigorous credit risk management, diverse asset portfolios, and
ongoing risk monitoring and assessment.

Deutsche Bank’s asset management strategies are critical for maintaining asset
quality. These strategies include managing both client and proprietary assets, with an
emphasis on diversification, risk-adjusted returns, and alignment with long-term strate-
gic objectives (”Deutsche Bank Annual Report, 2023”) [13].

Diversification and Risk Management

Diversification is an important approach used by Deutsche Bank to manage asset qual-

ity. By diversifying its investments across asset classes, sectors, and locations, the bank
decreases its exposure to certain risks. This diversification reduces the impact of adverse
events in a particular region, hence preserving total asset quality.
Risk management is integrated into all aspects of Deutsche Bank’s asset management
processes. The bank employs advanced risk assessment tools and procedures to examine
potential hazards and their implications for the asset portfolio. Regular stress testing
and scenario analysis are conducted to understand how different economic conditions
could affect asset quality. This proactive approach ensures that the bank can swiftly re-
spond to changes in the risk environment (”Deutsche Bank Annual Report, 2023”) [13].

Sustainable and Responsible Investing

The asset management approach of Deutsche Bank is increasingly centered on sustain-

ability. When making investment selections, the bank considers environmental, social,
and governance (ESG) factors. This improves asset quality by avoiding investments in
sectors that may carry long-term risks, in addition to being in line with global sus-
tainability standards. The bank’s dedication to ethical investment is a reflection of its
knowledge that, in the long run, sustainable assets frequently offer lower risk and more
consistent returns (”Deutsche Bank Annual Report, 2023”) [13].

Sustaining asset quality requires operational controls. Deutsche Bank has put in
place a strong control system that consists of ongoing audits, compliance inspections,
and asset performance monitoring in real time. These safety measures guarantee the
effective management of the bank’s assets and the early detection and resolution of any
new hazards.

Enterprise Risk Management

The framework for enterprise risk management at Deutsche Bank is essential to pre-
serving asset quality. The entire organization’s risks are identified, evaluated, and man-
aged using this methodology. Senior management reviews the risk inventory, which is
updated on a regular basis and includes all material risks, to make sure it is in line
with the bank’s risk appetite and strategic goals. All business divisions and regions are
guaranteed to preserve asset quality thanks to our all-encompassing approach to risk
management (”Deutsche Bank Annual Report, 2023”) [13].

Technological Integration

Sophisticated technology integration into asset management is another important com-

ponent of Deutsche Bank’s approach. The bank uses machine learning, artificial in-
telligence, and data analytics to improve asset management procedures and strengthen
its capacity for risk assessment. These technologies provide enhanced decision-making,
enhanced risk detection, and more precise forecasting, all of which support the upkeep
of good asset quality (”Deutsche Bank Annual Report, 2023”) [13].

To conclude the assets part of the CAMELS Rating System, we want to show the
calculation of two simple, but very meaningful ratios. By dividing the total loans by the
total assets, the loan to assets ratio determines the percentage of a bank’s total assets
that are loans. It shows how exposed the bank is to risk and how heavily it lends.

For 2023: Loans to asset ratio = Total Loans / Total Assets

= 485,984,000,000 / 1,312,331,000,000 = 37.03%
For 2022: Loans to asset ratio = Total Loans / Total Assets
496,754,000,000 / 1,336,788,000,000 = 37.16%

A high percentage indicates riskier credit and aggressive lending, which could lead to
larger earnings. On the other hand, a low ratio implies cautious lending, increased liq-
uidity, and decreased interest income profitability. We can say that a 37% Loans to
Assets ratio is a very good indicator.
On the other hand, the Loan Loss Provision to Total Loans ratio measures a bank’s
ability to cover potential loan defaults.

For 2023: Loan Loss Provision / Total Loans

= 1,505,000,000 / 485,984,000,000 = 0.31%

For 2022: Loan Loss Provision / Total Loans

= 1,226,000,000 / 496,754,000,000 = 0.25%

A higher ratio indicates a more conservative approach, implying that the bank has
made sufficient provisions and expects greater loan losses. A lower ratio may indicate
an underestimating of risks but also suggests confidence in the quality of the loans. This
ratio is essential for evaluating investor confidence, regulatory compliance, and financial
health. So we can say that Deutsche Bank was in a better position in 2022 when it
comes to the quality of loans.

5.2.3 M - Management

In this part of our paper, we have two graphs presented. Let’s take a look at
both of them. The first graph presents the evolution of Deutsche Bank’s leverage under
the CRR/CRD4 regulatory requirements over the period from 2013 to 2023. The graph
shows the changes in total assets, e.g. leverage was at a high level at the beginning of
the period, followed by a significant decline and then a partial recovery in recent years.

The second graph is the evolution of Deutsche Bank’s trading units’ Value-at-Risk
(VaR). The graph shows significant fluctuations in VaR, almost the same as in the first
graph.

So what kind of comparison can be made here? In terms of similarities, the decline
and recovery trends of both charts show a significant decline in the middle of the period
with a subsequent recovery by the end of the period. This indicates general trends in
the strategic risk and asset management of the bank.

As for the differences between the objects under consideration, there are two things
to note here - the difference of peaks/minima and temporal fluctuations. Speaking about
the first aspect of the comparison, the maximum values of VaR are observed at the
beginning of the period (2008), while for credit leverage the peak is in 2013-2014. The
minimums of VaR, on the other hand, are reached in 2019, while for credit leverage
the minimums are reached in 2020. Looking at the second aspect of the comparison,
 Figure 5.5: Evolution of Deutsche Bank Leverage Exposure
Source: Deutsche Bank, 2024 [12]

Figure 5.6: Evolution of Deutsche Bank Valut-at-Risk of Trading Units

Source: Deutsche Bank, 2024 [12]
VaR shows more pronounced fluctuations in the short term, especially between 2008 and
2013, while changes in leverage have been more gradual and stable.

These similarities and differences highlight the different aspects of risk and asset
management at Deutsche Bank, showing how the bank has adapted while maintaining
a common approach to mitigating risk and optimizing its operations.

The CAMELS rating system’s management quality component is essential for eval-
uating a financial institution’s performance and soundness. It evaluates how well the
management and board of directors of a bank identify, quantify, and control risks re-
lated to the institution’s operations, ensuring that they are safe, sound, and efficient
while adhering to relevant laws and regulations. (”The Uniform Financial Institutions
Rating System”, 1997) [14] states that because management quality has a major im-
pact on a bank’s performance, it is considered the most important component of the
CAMELS framework. In order to effectively guide both domestic and foreign company,
management needs to have well-defined plans and objectives. The assessment includes an
evaluation of the management’s strategic direction, risk management practices, internal
control systems, and adherence to regulatory requirements (Dang, 2011) [11].

The evaluation of management quality is based on a number of factors, such as

ownership structure, size, and years of operation. Banks that are highly ranked in
terms of assets, have a lengthy operational history, and are primarily controlled by the
government or big private companies are preferred. Key financial ratios, including the
growth rates of total assets, loans, and profits, are used to further examine the quality
of management. The standards for these ratios are nominal GDP growth and earning
growth rates of at least 10-15% (Dang, 2011) [11]. Proactive risk management and a
strong internal control environment are further indicators of effective management. The
management quality rating is a numerical scale of 1 to 5, where 1 represents completely
effective management and 5 represents very inadequate management that requires sub-
stantial intervention to resume safe and sound operations. The significance of robust
leadership and governance in preserving a bank’s stability and prosperity is emphasized
by this thorough assessment (Dang, 2011) [11].

A crucial part of the CAMEL model, management efficiency evaluates the potential
and skills of an organization’s management. This part assesses the efficiency and effec-
tiveness of management through the examination of qualitative metrics including staff
quality, organizational discipline, controls, and management-implemented systems,all of
which are essential for boosting revenue and net profit (Aspal & Dhawan, 2014) [2]. Fi-
nancial institutions must have effective management to succeed, even though its quality
indicators are usually organization-specific and not transferable. Because management
is subjective, it is difficult to evaluate its soundness using financial statements alone.
Nonetheless, certain ratios, such as the Gross Advances to Total Deposit Ratio and the
Cost to Income Ratio, can be used to calculate management efficiency. The income and
interest margins of banks can rise with effective cost management. Research shows that
managerial skills have an impact on firm behavior, accounting procedures, and reporting
quality (Bertrand & Schoar, 2003) [4]. This highlights the importance of management
in shaping firm outcomes. Management prowess is correlated with CEO pay, and bank
liquidity is positively correlated with hopeful CEOs (Huang et al., 2018) [16]. Bank per-
formance is heavily influenced by the skills of managers, with more experienced managers
being able to estimate and identify loan losses (Leverty & Grace, 2012) [19]. As a result,
more competent directors typically manage busier and more effective businesses, which
improves bank performance by increasing liquidity creation (Andreou et al., 2016) [1].

The management and board of directors of Deutsche Bank exhibit remarkable

efficacy in recognising, measuring, and managing risks related to the organization’s ac-
tivities. This guarantees the bank’s continued safety, soundness, and efficiency while
complying with pertinent laws and regulations. The management has put in place a
thorough framework for risk management that places a strong emphasis on strong capi-
tal, resilient balance sheet, and high-quality risk controls. Maintaining this foundation
is essential to the bank’s resilience and stability, particularly in unpredictable financial
circumstances. The management guarantees accurate identification and quantification of
all potential risks through the implementation of strict risk assessment methods, hence
facilitating the development of proactive mitigation solutions (”Deutsche Bank Annual
Report, 2023”) [13]. The bank’s smart investments in efficiency and technology serve
as another evidence of its dedication to upholding strong risk management procedures.
Artificial intelligence and process automation are two examples of initiatives that not
only improve the accuracy and efficacy of risk controls but also streamline operations.
Deutsche Bank is able to remain ahead of regulatory developments and ensure compli-
ance with the most recent regulations and standards thanks to technology advancements
(”Deutsche Bank Annual Report, 2023”) [13].

Furthermore, the management of Deutsche Bank places a high priority on contin-

uous improvements to its control systems. The management can show the efficiency of
its risk management systems to regulators and encourage a compliance culture inside
the company by testing and updating them on a regular basis. In addition to taking
a proactive approach toward regulatory compliance, the bank is committed to helping
its employees develop a culture of risk awareness and accountability (”Deutsche Bank
Annual Report, 2023”) [13]. Frequent training and development initiatives guarantee
that staff members, regardless of rank, comprehend the significance of complying with
regulatory requirements and has the necessary skills to properly handle risks. In addition
to giving strategic direction and making sure that management’s actions are in line with
the bank’s overall risk appetite and legal requirements, the board of directors is essential
in overseeing these efforts. Strong risk management procedures have become established
throughout the company thanks in large part to the board’s leadership role in estab-
lishing a risk-aware culture and setting the standard. In addition, a key component of
Deutsche Bank’s risk management approach is its emphasis on sustainability and moral
business conduct. The management of the bank makes sure that its activities comply
with rules and are in line with wider public expectations by integrating environmental,
social, and governance (ESG) factors into their risk assessment processes (”Deutsche
Bank Annual Report, 2023”) [13]. This comprehensive approach to risk management
fosters stakeholder trust and long-term resilience.

One of the most important measures of a bank’s operational effectiveness and liq-
uidity is the ratio of total loans to deposits. It sheds light on how successfully the bank’s
management is finding a balance between lending and deposit growth. An ideal LDR
is ensured by effective management, which also exhibits a strong grasp of risk manage-
ment, strategic planning, and regulatory compliance while striking a balance between
profitability and liquidity. Thus, this ratio represents the management’s competencies
and their influence on the stability and well-being of the bank’s finances.

For 2023: Total Loans / Total Deposits

= 485,984,000,000 / 622,035,000,000 = 78.13%

For 2022: Total Loans / Total Deposits

= 496,754,000,000 / 621,456,000,000 = 79.93%

A high ratio means that the bank is lending a significant amount of its deposits, which
might result in higher interest income returns. It also implies that the bank may not
have as much liquidity to fund withdrawals from deposits, which might make things
riskier if several depositors demand their money back at once. A low ratio indicates that
the bank is not making the most of its deposits to provide loans. This suggests a high
level of liquidity and a decreased chance of running out of money, but it may also imply
that the bank is losing out on possible loan income.

One important indicator of a company’s productivity and managerial performance

is the profit per employee ratio.

For 2023: Profit per employee = Net Income / Nr. of Employees

= 4,892,000,000 / 90,130 = 54.28$

For 2022: Profit per employee = Net Income / Nr. of Employees

= 5,659,000,000 / 84,930 = 66.63$

A high profit per employee is a sign that management is effectively using its people
resources to manage costs, integrate technology, hire strategically, and keep staff morale
high in order to optimize profitability. On the other hand, a low ratio indicates possible
problems that need to be resolved by management in order to raise output and total
profitability. As a result, this ratio not only illustrates the state of the business but also
acts as a yardstick for the operational and strategic efficacy of management.

5.2.4 E - Earnings Ability

Let us now look at the graph with the evolution of the net income and expenses
of the Deutsche Bank enterprise. The three indicators that appear here are Net Interest
Income, Total Non-Interest Income and Total Non-Interest Expenses. The vertical axis
of the chart shows the values of income and expenses in millions of euros, with a range
of -40000 to 36000 million euros.

Let’s look at one year for an example. In 2006, net interest income was 7008
million euros, total non-interest income was 21408 million euros, and total non-interest
expenses were -25380 million euros. In the following two years, there is an increase in
all categories of income, but also an increase in non-interest expenses.

The conclusions that can be drawn from this graph are: - There is a steady increase
in net interest income and total non-interest income from 2006 to 2023. This indicates
Figure 5.7: Evolution of Deutsche Bank Net Revenue and Expenses
Source: Deutsche Bank, 2024 [12]

Figure 5.8: Evolution of Deutsche Bank Net Income

Source: Deutsche Bank, 2024 [12]
that the bank has been successful in generating income - Non-interest expenses show an
upward trend over the period. This can be attributed to the increase in management,
regulatory and other operating expenses - Revenues have stabilized at a high level in
recent years (2020-2023), indicating the bank’s resilience to external and internal con-
ditions - Despite the overall growth in revenues, the increase in non-interest expenses
requires special attention to cost management to improve the overall profitability of the
bank

If we talk about the second chart in this section, it visualizes the evolution of
Deutsche Bank’s net income. The peak profit value fell in 2007, while the peak loss
value was in 2015, and the rest is not particularly interesting.

Conclusions that can be drawn from this graph: - Deutsche Bank’s financial results
show significant volatility over the period analyzed. Periods of high profits alternate with
periods of significant losses - Since 2020, the bank has shown a steady increase in profits,
indicating a recovering and improving financial position. This is the result of successful
restructuring and adaptation to new market conditions - Given the historical volatility
of financial results, the bank should continue to develop and implement sustainable risk
management and operational efficiency strategies to minimize the impact of external and
internal factors on profitability

A bank’s earnings ability is a comprehensive metric that takes into account not
only the volume and trends of its earnings over time, but also their sustainability and
stability. It includes a number of elements, including revenue streams and stability, prof-
itability ratios, and the bank’s capacity to absorb losses without compromising its ability
to run effectively (Dang, 2011) [11]. A bank’s earnings ability is rated by the widely used
CAMELS rating system according to how well it can manage loan allowances, retain suf-
ficient capital, and fund its ongoing operations. In this domain, a high rating indicates
robust and constant earnings that are adequate to absorb losses and sustain capital ade-
quacy, whereas a low rating suggests susceptibility and possible threats to the solvency of
the institution. The cost-to-income ratio, return on assets (ROA), and return on equity
(ROE) are important financial ratios that are used to assess earnings capabilities. A bank
must have a cost-to-income ratio of 70% or less, a return on assets (ROA) of at least 1%,
and a return on equity (ROE) of at least 15% in order to be considered financially strong
(Dang, 2011) [11]. These ratios assist in evaluating the bank’s potential to turn a profit
from its equity and assets as well as how well it generates income in comparison to its
costs. Consistent profitability is crucial as it builds public confidence, ensures a balanced
financial structure, and provides shareholder rewards. In addition, the CAMELS rating
system highlights the need for forward-looking assessments when evaluating a bank’s
financial health by emphasizing that future earnings success should be given equal or
higher weight than past and present performance. By taking a forward-looking position,
banks are evaluated not just on the basis of past performance but also on their capacity
to maintain profitability and handle unforeseen financial difficulties, protecting the in-
stitution’s long-term viability and enhancing overall financial stability (Dang, 2011) [11].

For 2023: ROE = Profit after tax / Shareholders equity

= 4,892,000,000 / 64,486,000,000 = 7.59%

For 2022: ROE = Profit after tax / Shareholders equity

= 5,659,000,000 / 61,959,000,000 = 9.18%

Deutsche Bank had a better Return on Equity in 2022 then 2023, bu we can say that
they fail to reach the optimal ratio of at least 15%

For 2023: ROA = Profit after tax / Total Assets

= 4,892,000,000 / 1,312,331,000,000 = 0.37%

For 2022: ROA = Profit after tax / Total Assets

= 5,659,000,000 / 1,336,788,000,000 = 0.42%

Deutsche Bank had a better Return on Assets in 2022, but in both years they again
did not reach the optimal 1% ratio.

For 2023: Cost to Income Ratio = Operating expenses / Operating Income

= 54,301,000,000 / 9,099,000,000 = 5.97

For 2022: Cost to Income Ratio = Operating expenses / Operating Income

= 33,854,000,00 / 5,686,000,000 = 5.95

When it comes to the cost-to-income ratio, there is only a slight difference between
the two years.

Deutsche Bank’s earnings ability in 2023 is demonstrated by an extensive range

of financial indicators that demonstrate its strong performance in the face of difficult
market conditions. The bank’s ability to make a sizable profit from its varied business
operations is evident by its overall net revenues, which increased to €28.9 billion from
€27.2 billion in 2022. A steady rise in net interest income, which came to €34.5 billion
in 2023 from €19.6 billion the year before, supports this increase in revenue (”Deutsche
Bank Annual Report, 2023”) [13]. The provision for credit losses, which rose to €1.5
billion from €1.2 billion in 2022, indicates the bank’s prudent approach in managing po-
tential credit risks. Despite these provisions, the bank maintained a solid pre-provision
profit of €7.2 billion, up from €6.8 billion in 2022, reflecting its strong underlying prof-
itability. The cost-to-income ratio, which is a crucial indicator of operational efficiency,
stayed steady at roughly 75%, demonstrating Deutsche Bank’s skillful cost control tech-
niques. Additionally, the bank’s reported return on tangible equity (RoTE) was 7.4%,
which is slightly lower than its 2022 RoTE of 9.4% but still shows that it can produce
sufficient returns for shareholders (”Deutsche Bank Annual Report, 2023”) [13]. The
bank’s capital strength is measured by the common equity tier 1 (CET1) capital ratio,
which was slightly higher at 13.7% than the 13.4% recorded the year before. This in-
dicates the bank’s strong capital position and resilience to financial shocks (”Deutsche
Bank Annual Report, 2023”) [13]. Furthermore, the bank’s strong 140% liquidity cov-
erage ratio (LCR) guarantees that it has enough high-quality liquid assets on hand to
meet its net cash outflows throughout a 30-day stress period. Additionally, Deutsche
Bank disclosed a 4.5% leverage ratio, demonstrating its careful management of leverage
while keeping plenty of room to accommodate future company growth (”Deutsche Bank
Annual Report, 2023”) [13]. The bank’s earnings per share (EPS), which were €2.03 on
a diluted basis and €2.07 on a basic basis, further demonstrates its capacity to produce
profits and demonstrates its dedication to provide value to shareholders.

5.2.5 L - Liquidity

Now it’s time to talk about liquidity. Liquidity is a critical aspect of a bank’s
financial health, reflecting its ability to meet short-term obligations without incurring
significant losses. Liquidity management at Deutsche Bank is necessary to ensure sta-
bility and maintain the confidence of depositors and investors. In this section, we will
analyze our liquidity position, looking at key indicators such as LCR and NSFR, as well
as trends in liquid reserves.

We have already touched on the topic of LCR earlier, namely in chapter 3 of

this paper when we talked about Basel III. We also noted earlier that Deutsche Bank
maintains a high level of LCR, consistently exceeding the regulatory requirement of 100

Figure 5.9: Evolution of Deutsche Bank Liquidity Coverage Ratio

Source: Deutsche Bank, 2024 [12]

Let’s now take a look at the Evolution of Liquidity Coverage Ratio chart based on
the Excel spreadsheet in the attachments. The graph shows the changes in the LCR value
in percentages. It shows that Deutsche Bank maintained a liquidity coverage ratio above
the regulatory requirement of 100 procents throughout the period under review. This
demonstrates the bank’s strong liquidity position and its ability to effectively manage
short-term liabilities even in volatile conditions.

We can also consider how this indicator is calculated. LCR is calculated as the
ratio of HQLA to total net cash outflows over a 30-day stress period. The formula for
calculating LCR is as follows:
 LCR = (HQLA/Net Cash Ouyflows)*100%

It may also be noted that HQLA includes cash, central bank deposits, government
securities and other assets that can be quickly converted into cash without significant
losses. And Net Cash Outflows is defined as the difference between expected cash out-
flows and cash inflows over a 30-day period

Speaking of NSFR, it is a regulatory metric introduced under Basel III that mea-
sures a bank’s long-term soundness by assessing the ratio of Available Stable Funding
(ASF) to Required Stable Funding (RSF). NSFR helps banks avoid excessive liquidity
risk for up to one year. The minimum requirement for NSFR is set at 100Ḣow is this
ratio calculated?

NSFR = (ASF/RSF)*100%

ASF includes liability elements that are considered stable, such as capital and
debt obligations with maturities greater than one year, as well as stable deposits. To
calculate ASF, each liability element is multiplied by the appropriate stability ratio set
by the regulator. This ratio reflects an assessment of the stability of various sources
of funding and assets, taking into account their likelihood of remaining with the bank
during a crisis period. Under Basel III, these ratios vary by type of liabilities and assets,
and they help banks determine how stable their funding is and how long they can expect
to maintain liquidity. For example: - Equity and debt with maturities greater than one
year: 100% - Stable retail deposits: 95% - Less stable retail deposits: 90% - Corporate
deposits: 50-75% (depending on stability and contractual terms)

RSF in turn includes asset elements that require stable funding for up to one year.
To calculate RSF, each asset element is also multiplied by a stability ratio. Talking
about the ratios in this case, these are: - High Quality Liquid Assets (HQLA): 0-15%
- Loans and advances: 50-85% - Long-term investments: 100% - Other assets that are
difficult to sell or convert to cash: 85-100%
 Figure 5.10: Evolution of Deutsche Bank Liquidity Reserves
Source: Deutsche Bank, 2024 [12]

Finally, let’s talk about the evolution of the liquid reserves of the company in
question. Figure 5.10 shows us what changes in the volume of liquid reserves have
occurred at Deutsche Bank over the period from 2009 to 2023. In general, there is a
general upward trend over the period under consideration, i.e. at the beginning of the
period the reserves were significantly lower, and over the following years the bank has
consistently increased the volume of liquid assets. One can also notice the company’s
reaction to the economic situations in the world, based on the indicators. One can see a
sharp increase in liquid reserves in 2010 and subsequent steady growth until 2012, which
reflect the liquidity measures in response to the global financial crisis of 2008.

It can be concluded that the bank actively manages its liquid assets in response to
external and internal challenges. The growth of reserves in the aftermath of the financial
crisis and their stabilization in recent years demonstrate the bank’s commitment to
ensuring financial stability and compliance with regulatory requirements, which is a key
aspect in risk management and operational stability.

In conclusion, Deutsche Bank’s liquidity position has evolved significantly in re-

cent years, with notable improvements in response to regulatory reforms and economic
challenges. Stable and high liquidity reserves demonstrate the bank’s commitment to
maintaining financial stability and confidence among stakeholders. This comprehensive
approach to liquidity management ensures Deutsche Bank’s ability to meet its short-term
obligations and maintain a strong financial position in the face of potential economic
shocks.

5.2.6 S - Sensitivity
Chapter 6

Conclusion and Recommendations

Due to the considerable legal and economic problems, Deutsche Bank has encoun-
tered many downfalls over the last several decades that has led the bank to make major
adjustments to its operations and risk management procedures. The purpose of the
study was to determine if Deutsche Bank is now more resilient to external shocks, espe-
cially in light of the 2008 global financial crisis and the regulatory changes from Basel I
to Basel IV.

The Basel Accords journey of Deutsche Bank demonstrates how its risk manage-
ment procedures are developing. When Basel I was first implemented in 1988, it was
mainly concerned with credit risk and set a minimum capital requirement. However
due to this framework’s narrow attention to detail, Basel II, which included operational
and market risks was introduced in 2004. Basel III was created as a result of the 2008
global financial crisis, which highlighted significant weaknesses in the banking industry.
To increase banks’ resilience to economic shocks, this agreement imposed stricter capital
requirements, leverage ratios, and liquidity standards.

Deutsche Bank’s enhanced capital ratios and liquidity balances demonstrate that
the bank complies with Basel III rules. The bank has continuously fulfilled or exceeded
regulatory criteria for its Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio
(NSFR), which demonstrates a stronger framework for managing liquidity. By taking
these precautions, Deutsche Bank can be more resilient since it will have enough high-
quality liquid assets to withstand extreme stress situations. Deutsche Bank has made
significant internal adjustments to improve operational stability and risk management.
The bank had severe losses and legal issues after the crisis, which made a thorough
revision of its risk governance procedures necessary. The bank’s capacity to recognize
and reduce possible risks at an early stage has increased with the implementation of
sophisticated risk assessment models and a stricter internal audit procedure.

Furthermore, a thorough framework for assessing the general health of the bank
has been made available by the adoption of the CAMELS rating system, which focuses on
capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity
to market risk. Deutsche Bank’s enhanced resilience against both internal and external
shocks is a result of its efforts to uphold high standards in these areas. The financial
results of Deutsche Bank throughout the years show how flexible the bank has been

30
in responding to shifting market dynamics and legislative requirements. The bank’s
Common Equity Tier 1 (CET1) ratio is still over the regulatory threshold, indicating a
notable increase in the capital adequacy measures. This suggests a more robust capital
structure that can withstand possible losses in times of economic contraction.

Moreover, Deutsche Bank’s emphasis on preserving a varied income stream has

lessened the effects of downturns in certain industries. The bank’s dedication to inno-
vation and digital transformation has also been essential in improving the quality of its
customer service and operational efficiency, which has strengthened its business model.

In order strengthen its resilience and ensure sustainable stability, Deutsche Bank
need to take into account the subsequent recommendations:

Consistent Improvement in Risk Management: In order to better foresee and han-

dle any hazards, Deutsche Bank should keep improving its risk management frameworks
and integrate cutting-edge technology like artificial intelligence and machine learning.
The bank will remain ahead of new dangers if risk management staff members partici-
pate in ongoing training and development programs.

Increasing Regulatory Compliance: Although Deutsche Bank has achieved great

progress in this area, continued attention to detail is needed to adapt to changing regu-
latory environments. In cooperation with regulatory agencies, regular audits and stress
tests will guarantee that the bank stays compliant and ready for upcoming difficulties.

Improving Operational Resilience: To guard against technical interruptions and

cyber threats, operational resilience should be prioritized and supported by investments
in solid IT infrastructure and cybersecurity measures. By creating thorough business
continuity strategies, the bank will be able to continue operating even in the event of
unanticipated circumstances.

Encouraging Sustainable Practices: By integrating environmental, social, and gov-

ernance (ESG) factors into the bank’s strategic planning, it will enhance its credibility
and attract in an increasing number of socially concerned investors. Additionally, sus-
tainable practices can reduce long-term hazards brought on by social and environmental
issues.

Increasing Global Presence: By utilizing its extensive global reach, Deutsche Bank
need to investigate prospects for expansion in developing economies, which provide
chances for increased profits and varied sources of income. Partnerships and strategic al-
liances can help reduce the risks involved with entering certain markets while facilitating
access.
List of Figures

4.1 Adjusted Close Prices of DBK.DE and EXS1.DE . . . . . . . . . . . . . . 10

4.2 Evolution of Deutsche Bank Equity . . . . . . . . . . . . . . . . . . . . . . 11

5.1 Evolution of Deutsche Bank Regulatory Capital . . . . . . . . . . . . . . . 13

5.2 Evolution of Deutsche Bank Regulatory Capital Ratios . . . . . . . . . . . 14

5.3 Evolution of Deutsche Bank Assets . . . . . . . . . . . . . . . . . . . . . . 15

5.4 Evolution of Deutsche Bank Regulatory Liabilities . . . . . . . . . . . . . 15

5.5 Evolution of Deutsche Bank Leverage Exposure . . . . . . . . . . . . . . . 20

5.6 Evolution of Deutsche Bank Valut-at-Risk of Trading Units . . . . . . . . 20

5.7 Evolution of Deutsche Bank Net Revenue and Expenses . . . . . . . . . . 24

5.8 Evolution of Deutsche Bank Net Income . . . . . . . . . . . . . . . . . . . 24

5.9 Evolution of Deutsche Bank Liquidity Coverage Ratio . . . . . . . . . . . 27

5.10 Evolution of Deutsche Bank Liquidity Reserves . . . . . . . . . . . . . . . 29

32
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