Deutsche Bank Legal, Risk & Capital

Maintain and Increment Operational Risk Standards

Robert Huebner Sao Paolo, May 2010

Deutsche Bank ORM

Set up and History 1997 Loss Collection 1999 EC Calculation 2001 Group ORM Committee 2002 Risk Acceptance Policy 2003 Outsourcing OR Assessment 2004 Acquisition OR Pricing 2006 EL Budgeting 2007 AMA approval 2008 Top Risk & Targets 2009 NPA OR Assessment
Organisation
Hugo Banziger Ch ief Risk Officer Risk Execu tive Committee Andreas Gottschling Global Head of ORM & RAI Operation al Risk Man agement Committee

Market Risk VaR

Portfolio & Decision An alytics

ORM Robert Hu ebn er

In tern al Capital Models

COO ORM & RAI

New Produ ct Approval

Business Partnership Model

DB Group Board

Risk ExCo
Group Head of ORM & RAI
Strategy
A na lytic al fram ewo rk, Target Se tting, Re porting , V alue-ad ded A nalysis

Group Executive Committee

Divisional Man agement

D ay-to- D ay R isk M anagem ent

B us iness P artners Fram ew ork im plem enta tion Da ily risk m anagem ent

M onitoring
Testing and verification by: Au dit, C ontrol & S upport Groups

Business Partnership Model

Group ORM

Divisional ORM

Deutsche Bank Legal, Risk & Capital Rob Nagra April 2010 page 2

Robert Huebner May 2010

Advanced Measurement Approach Model

Deutsche Bank Legal, Risk & Capital Dr. Andreas Gottschling March 2010 page 3

Robert Huebner May 2010

Model Foundation - Relevant Loss Data

Internal > EUR 10k ORX, OpVar / First > EUR 1m Newspaper Bias Removal No Scaling Reviewed for Real Loss Boundary CR / MR / BR Can never happen to DB
Not in Business Not in Regulatory Regime
OR EC Calculation - Building Blocks

Scenarios to fill Gaps if any

Deutsche Bank Legal, Risk & Capital Robert Huebner May 2010 4

Risk Engine Monte Carlo Simulation

Frequency Internal Losses 20 Quarters Severity External Losses & Scenarios 25 Years Empirical composed Extreme Value Theory
Modelling

Deutsche Bank Legal, Risk & Capital page 5

Robert Huebner May 2010

Reflection of Risk Mitigants

Insurance Real Third Party Contract Modelling Cap / Deductable / Rating % & Probability of Payment Future: Risk Transfer Products Investor Appetite Pricing Reference Third Party Loss Verification Funding / Margin
Deutsche Bank Legal, Risk & Capital Robert Huebner May 2010

Insurance

OR Transfer Swap

OR Protection

OR Protection Seller

Fee x bps / Premium

DB
Trigger => Payment

Diversification & Aggregated Distribution

Limited Correlation High impact events do not impact a division / multiple divisions simultaneously Diversification High impact events do not occur across Event Types at the same time Aggregated Distribution OR Economic Capital 99.98% OR Regulatory Capital 99.9%
Risk Type Diversification

Aggregated Distribution

Deutsche Bank Legal, Risk & Capital

Robert Huebner May 2010

Expected Losses Deduction

Factored into annual P&L Derived from Top Risk Analysis Historical Loss Experience Business Model Changes Budgeted Risk Mitigations Risk Acceptances Budgeted via dedicated Accounts
Deutsche Bank Legal, Risk & Capital Robert Huebner May 2010 8

Divisional Expected Losses

Business Environment & Internal Control Modelling

Promote Continuous Improvement KRI / RCSA Loss Coverage KRI / RCSA Sensitivity Operational Risk Management Data Capture
Maximal range 40% Coverage of Risk profile e.g. 50% 20% Risk Sensitivity, e.g. 50% 10% Score Score applied to reduced range

Qualitative Adjustment Model

Justified by qualitative, impact studies

Assessed on qualitative Coverage Analysis criteria Risk Sensitive Component

Measured through:

Applied on BL / ET Cell level Penalty Component

Deutsche Bank Legal, Risk & Capital Dr. Andreas Gottschling March 2010 page 9

Robert Huebner May 2010

Embedded Continous Validation & Improvement

Framework & Model Risk Management

AMA Production Idea Log Project Identification Programme Governance Validation

Risk Profile Reviews Weekly Themes Deep Dive Identification Deep Dive Schedule Top Risk Analysis

DB ORM Plan

Deutsche Bank Legal, Risk & Capital page 10

Robert Huebner May 2010

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Risk Taking & Target Monitoring fosters OR Culture

Further Escalation Channel Maintain good Risk Culture Prevent un-assessed Force ownership Ensure consistent Decisions Avoid or Accept Quantified risk-reward Authorised & Accountable
Identification & Capture

Risk Acceptance process

Evaluation Inherent & Residual Management; Monitoring; Mitigation; Transfer; Review Acceptance

Inherent Risk Residual Risk Documentation Implem ented Identification Implementation (dbTrack) Approval Review

Evaluation

ORM Performance Targets

ORMC Trend Monitoring Overdue PIR, IRO Reviews

ORMC / Risk ExCo Escalation Lacking NPA or IRO authorizations Overdue critical Audit, Regulatory , or self-identified issues, ORMCidentified clusters ORMC-identified clusters

Overdue significant Audit, Regulatory, or self-identified issues

Overdue Event Escalation, Lessons Learned, AMA production, Country Risk Workshops, BCM, Risk Acceptance or profile reviews, ORM Framework change implementations

Deutsche Bank Legal, Risk & Capital

Robert Huebner May 2010

M itigation

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Net Benefit based Risk Optimisation

Price Incremental Risk Expected Loss Insurance Premiums Capital Cost

OR Risk-Return Analysis
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10

Frequency Severity Expected Loss Qualitative Adjustment

0 Capital Cos t Inves tm ent Capital Cost Reduction Res idual Capital Cos ts

Cost-Benefit Analysis
6 5 4 3 2 1 0 1 2 3 4 5 6 7 Annual Cost Savings Annual Loss Development

Versus Return Mitigation Costs Cost Savings / Revenues

Deutsche Bank Legal, Risk & Capital page 12

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OR Mandate in line with enhanced Understanding

No Correlations with Inflation Interest Rates Seasonality Number of Transactions Macro Economic Correlations Litigations in Americas Timing Losses OR driven Market Risk OR driven Credit Risk
CDS s preads Filed Litigations

dot.com

S t oc k Index

Filed lit igat ions

Credit Crunch

Deutsche Bank Legal, Risk & Capital page 13

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