DZ BANK Internal model for liquidity risks

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1 DZ BANK Group Treasury - Internal model for liquidity risks Seite 1 DZ BANK Internal model for liquidity risks ECB Money Market Contact Group Michael Schneider, February 21

2 Liquidity risks international requirements DZ BANK Group Treasury - Internal model for liquidity risks Seite 2 Principles for sound liquidity management and supervision dated Sept. 28 Areas of focus Concentration on extreme stress scenarios Allocation of liquidity costs/risks Quantitative liquidity buffer Changes Internal liquidity management systems for groups Expansion of the role of the supervisory bodies Monitoring of implementation Legal implementation EU: CRD Amending Directive (Appendix V / XI) DE: Modification of MaRisk (BTR 3) Follow-up work 1. Development of a quantitative framework (consultation paper from December 29) 2. Implementation study on liquidity principles from September 28 (starting 21)

3 DZ BANK Group Treasury - Internal model for liquidity risks Seite 3 Liquidity risks national requirements in Germany Liquidity risk Quantitative requirements Principle II (LiqV*) since 1999 Standard procedure Savings clause since Internal model Qualitative requirements MaRisk* Indirect minimum requirements for all banks since In 27, five German banks submitted applications to have their internal model for liquidity risks examined and approved. The crisis in the financial markets and the increased legal requirements have made it significantly more difficult for banks to obtain approval for their liquidity risk models. DZ BANK was one of the first banks to have its liquidity risk model approved in accordance with 1 LiqV, in October 29, and thereby to discontinue the standard procedure. * Liquiditätsverordnung = German Liquidity Requirements; MaRisk = Germany s Minimum Requirements in Risk Management

4 DZ BANK Group Treasury - Internal model for liquidity risks Seite 4 Liquidity risk the DZ BANK Group For calculating liquidity risk, DZ BANK uses its own internal procedure for measuring and managing liquidity risk, which has been approved by BaFin* in accordance with 1 LiqV for use in assessing liquidity adequacy, in place of the standard procedure (Principle II) prescribed by the authorities. Risk model at the level of the DZ BANK Group Daily simulation of one risk scenario and four stress scenarios Calculation of the key figure minimum liquidity surplus for each scenario Liquidity risk limitation on the basis of the minimum liquidity surplus Focus: liquidity up to 1 year * BaFin = Bundesanstalt für Finanzdienstleistungsaufsicht = German financial services regulator

5 DZ BANK Group Treasury - Internal model for liquidity risks Seite 5 Monitoring of liquidity risk at the DZ BANK Group The internal model covers the whole DZ BANK Group + -! Internal model monitors the liquidity risk of the DZ BANK Group Additional regional requirements are being stipulated (e.g. by the FSA, MAS, HKMA); the principle of proportionality is not being applied Importance of treating all affected equally and of maintaining a level playing field DZ BANK AG German Group companies DG Hyp TeamBank International Group companies DZ International Luxembourg DZ Ireland DZ Privatbank Schweiz Foreign branches New York London Hong Kong Singapore DVB BSH Regulatory approval DZ Polska Additional regional requirements up-to-date There is a disrepancy in points of view for management, measurement and the regulatory approval.

6 DZ BANK Group Treasury - Internal model for liquidity risks Seite 6 Internal model for liquidity risks basic structure Minimum liquidity surplus The key figure minimum liquidity surplus, which quantifies the minimum amount of cash surplus available within the following year in the event of the scenario actually occurring and taking immediate effect, is calculated for each scenario. minliq = counterbalancing capacity - forward cash exposure Forward cash exposure Covers both expected and unexpected payments Counterbalancing capacity Includes balances on Nostro accounts, eligible securities as well as unsecured refinancing capacity from customers and banks as well as from commercial papers and certificates of deposits (CP/CD).

7 DZ BANK Group Treasury - Internal model for liquidity risks Seite 7 Internal model for liquidity risks basic structure Minimum liquidity surplus Date X million dd.mm.yy (negative figures in m Forward Cash Exposure CBC dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy (positive figures in m Minimum liquidity surplus Date X million dd.mm.yy (negative figures in m dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy dd.mm.yy Stressed FCE Stressed CBC (positive figures in m

8 DZ BANK Group Treasury - Internal model for liquidity risks Seite 8 Internal model for liquidity risks scenarios The risk scenario reflects current market conditions and company circumstances. Stress tests are carried out to indicate both the forward cash exposure and the counterbalancing capacity using the 4 scenarios: Downgrading Organisational crisis Crisis in the markets A combination crisis Each stress scenario illustrates, in relation to the event simulated, a serious deterioration of the underlying conditions. The stress scenarios consider serious causes originating out of the market as well as causes internal to the bank.

9 DZ BANK Group Treasury - Internal model for liquidity risks Seite 9 Parameters of the stress test for the measurement of liquidity risks Basis Analysis of historical data Breakdown of historical data Statistical modelling Reconciliation by an expert estimate/experience Drivers of unexpected liquidity outflows Reduction of deposits (in specific customer groups) Irrevocable credit commitments to customers are drawn down Irrevocable credit commitments to conduits are draw down Liquidity requirements of group companies Occurence of loss (VaR) Exchange rate changes in foreign currency positions that cannot be funded locally Collateral payments from OTC and repo business Margin calls for futures transactions Parameters of funding opportunities in the unsecured market Reduction of expected money market borrowing customers Reduction of expected money market borrowing banks Reduction of expected money market borrowing CPs/CDs

10 DZ BANK Group Treasury - Internal model for liquidity risks Seite 1 Parameters of the stress test for the measurement of liquidity risks Parameters of funding opportunities in the secured market Basic identification and selection of securities that are eligible for transactions with the central bank and those which are not Liquidation percentage of the total volume that is to be liquidated Market acceptance percentage of the liquidated securities accepted by market Haircut percentage markdown on the market value of the liquidated securities Fall in price percentage markdown on the market value of the liquidated securities E = L * M * (1-H) * ( 1-K)

11 Handelstag: Nächste Woche Nächsten Monatsultimos 3 Monate 1 Jahr Forward Cash Exposure Erwartete Liquiditätsposition DZ BANK Inland Mindestreservesoll Margenzahlung Börsentermingeschäfte Bonds Handel Devisengeschäfte Zinsderivate 3) Einlagenveränderung / RB 1) VB Tages- und Termingelder 2) (ohne VB/RB) Gesamtbank Inland London New York Hongkong Singapur davon : in Fremdwährung davon : nicht von TRLG / C abgeschlossene Geschäfte Nostrokonten davon: aus Collateral Management davon: mit den Auslandsfilialen Zentralbankkonto davon: mit der DZI davon: mit anderen Konzerngesellschaften Nostrokonten CPs / CDs Repo/Leihe Einlagen davon: Triparty Repo EZB Refinanzierungsgeschäfte Volksbanken und Raiffeisenbanken (VB/RB) TRL davon: KK-Konten TRA Kredite davon: Tages- und Termingelder Zertifikate/Aktien/Aktienderivate Sonstige KK-Konten (ohne VB/RB) Eigenemissionen ZD Geldmarktaufnahme Eigenmittel Aktiv ZD Handelstag: Eigenmittel Passiv ZD Erwartete max. Geldmarktaufnahme Kunden davon: Deckungsstock Derivate Deckungsstock Geldmarktaufnahme Kunden Minimaler Kredite Liquiditätsüberschuss Deckungsstock Auslastung Normal-Szenario Deckungsstock Datum Eigenemissionen Deckungsstock Erwartete max. Geldmarktaufnahme Interbanken Ausland -14. Geldmarktaufnahme Interbanken London 14. Auslastung New York Hongkong Singapur Erwartete max. Geldmarktaufnahme CP / CD Konzerngesellschaften -1. Geldmarktaufnahme CP / CD DG HYP 1. Auslastung DZI -8. DZ BANK Ireland 8. DVB -6. TeamBank 6. DZ PB EZB- fähig TR BSH -4. Unerwartete Liquiditätsposition 4. Repo/Leihe DZ BANK -2. davon: WP-Leihe mit VB/RB Inland 2. Liquiditätsbedarf Intraday Margenzahlung Börsentermingeschäfte Einlagenveränderung - Konten KK EZB Refinanzierungsgeschäfte Einlagenveränderung / RB VB Fed 29.1 Discount 12.2 Window 26.2 TR Eigenemissionen Abruf unwiderrufliche Kreditzusagen. Kunden ggü Forward Cash Exposure Fed Refinanzierungsgeschäfte Counterbalacing Capacity Abruf unwiderrufliche Kreditzusagen. Conduits ggü Sonstig TR ohne ABS Verlusteintritt Verlustobergrenze Ausland Konzerngesellschaften davon: SNB- fähig Minimaler Liquiditätsüberschuss Repo/Leihe Counterbalancing Capacity Stress-Szenario 1 davon: WP-Leihe mit VB/RB Datum EZB- (Downgrading) fähig Capital Markets Nostrokonten DZ BANK Inland Repo/Leihe -14. Bundesbankkonto 14. Nostrokonten Ausland Konzerngesellschaften -1. DZ BANK 1. Inland -8. Normal-Szenario EZB- fähig 4) TR Stress-Szenario 18. Stress-Szenario 2 Stress-Szenario 3 (Downgrading) (Unternehmenskrise) (Marktkrise) -6. Repo/Leihe 6. Liquiditätsbedarf Intraday Limitüberwachung EZB Refinanzierungsgeschäfte Sonstig TR ohne 4) ABS Minimaler Liquiditätsüberschuss -2. Repo/Leihe 2. Beobachtungsschwelle Auslastung EZB- fähig Capital 4) Markets Untergrenze (Limit) Repo/Leihe Auslastung Ausland Datum Konzerngesellschaften Forward Cash Exposure Counterbalancing Capacity Geldmarktaufnahme Kunden / Interbanken Erläuterung DZ BANK Erwartete maximale Geldmarktaufnahme Ist-Geldmarktaufnahme - Inland Szenariodauer 1 Jahr 1 Jahr 1 Jahr 1 Jahr Minimaler Ist-Geldmarktaufnahme Liquiditätsüberschuss - Ausland Liquiditätsverfügbarkeit am Geldmarkt leicht Konzerngesellschaften reduziert reduziert stark reduziert sehr stark reduziert Stress-Szenario 2 Datum Refinanzierung über Bundesbank Geldmarktaufnahme CPs / CDs (Unternehmenskrise) Refinanzierung über Fed DZ BANK nein nein Liquidierung TR Ausland nein Erwartete maximale Geldmarktaufnahme Liquidierung EZB - fähige CM nein Ist-Geldmarktaufnahme - Inland -14. Ist-Geldmarktaufnahme - Ausland 14. Haircut bei nicht notenbankfähigen n hoch hoch sehr hoch Konzerngesellschaften -12. Kursverfall bei n nein nein 12. nein Verlusteintritt Verlustobergrenze Liquiditätsüberschuss nein nein nein Bemerkungen: 8. 1) Erwartete Einlagenentwicklung / bei VBRB ist über die nächsten 12 Monate modelliert. 2) -6. Kündbare Geldmarktgeschäfte werden bis. zur Endfälligkeit abgebildet aktuell 3) Delta z. Vortag *) 6. Ungedeckt Deckungsstock Gesamt Kündbare Zinsderivate werden mit dem ersten. Kündigungstermin abgebildet davon: 4) davon: Inklusive Haircut und Nettoverfügbarkeit. -4. Laufzeitenband aktuell 4.Vortag aktuell Vortag aktuell Vortag Gesamt Deckungsstocstock Gesamt Deckungs Flows - Aktiv 1 Jahr Flows - Passiv über alle Währungen, alle Angaben. in Mio 2 Jahre Flows - Gesamt Jahre Long Term Ratio 4 Jahre Forward Cash Exposure Counterbalancing Capacity 5 Jahre 6 Jahre Bemerkungen: 7 Jahre Minimaler Liquiditätsüberschuss 8 Jahre Stress-Szenario 3 Datum 9 Jahre (Marktkrise) 1 Jahre > 1 Jahre Summe über alle Währungen, alle Angaben in Mio über alle Währungen, alle Angaben in Mio. Forward Cash Exposure Counterbalancing Capacity DZ BANK Group Treasury - Internal model for liquidity risks Seite 11 Internal model for liquidity risks IT Implementation Global Data Sources Data Warehouse Central Reporting EUR USD GBPJPY CHF HKD SGD Product Level All Locations Currency Level All Main Currencies Location Level Consolidated Reporting in Cash Flows Collaterals Accounts Liquidität bis ein Jahr - DZ BANK Gruppe Liquiditätsrisiko - DZ BANK Gruppe A. Liquiditäts -und Refinanzierungssituation der DZ BANK per B. Liquidität bis ein Jahr der DZ BANK Gruppe Liquidität bis ein Jahr - DZ BANK Gruppe - Normal-Szenario - C. Liquiditätsgesamtabläufe der DZ BANK D. Strukturelle Liquidität der DZ (> BANK 1Jahr) Integrated Liquidity Risk Management Solution (CaLM) Forward Cash Exposure Forward Cash Exposure Counterbalancing Capacity Counterbalancing Capacity

12 DZ BANK Group Treasury - Internal model for liquidity risks Seite 12 Summary and outlook State-of-the-art liquidity management Internal model has been approved by the German banking regulatory authority Confirmation of the quality and risk orientation of liquidity management, also against the background of increasing regulatory requirements New and additional requirements for liquidity risk measurement FSA September 29 CEBS December 29 Basel Committee on Banking Supervision December 29 Conflicting priorities when considering modified and new control parameters Harmonized level playing field Standard approach vs. advanced approaches (internal models) Uncertainty of defining of requirements for Counterbalancing capacities, liquidity buffer, liquidity reserves and others.