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Risk-oriented overall bank management

The overall aim of comdirect is to increase the value of the company on a sustainable basis with a manageable level of risk at all times, whilst striking a balance between attractive earnings and the creation of future earnings potential through customer and asset growth.

Consequently, we do not assess risks on an isolated basis but as an integral part of overall bank management. In every market and corporate phase, the aim is to secure an optimum risk/return ratio taking external and internal factors into consideration and allowing for comdirect bank’s risk-bearing capability as well as regulatory requirements. Deviations from the targets set can be identified promptly and their causes analysed.

A consistent risk strategy is developed on the basis of the comdirect group’s business strategy and determined by the Board of Managing Directors of comdirect bank AG. This strategy specifies the extent to which the bank is prepared to take on risk in order to utilise opportunities and to provide the equity to do this. Separate risk strategies for all material risk categories are defined in the overall risk strategy.

In accordance with the stipulations of the minimum requirements for risk management (MaRisk), we have established a process for planning, adjusting, implementing and assessing our strategies that facilitates a precise target/ actual comparison of goals and the level of implementation achieved.

The comdirect group pursues business models, which are based on generating net commission income and net interest income in brokerage, banking and advice. The associated risks are transparent and limits are set for risks which can be quantified and compliance with these limits is monitored on a continual basis.

Risk management, controlling and reporting

Our risk management and controlling system forms the basis for implementation of the risk strategies. The system enables us to identify risks at an early stage, assess them under various assumptions and scenarios, and carefully manage them. We are therefore in a position to take measures immediately to counter risks in the event of any unwanted developments. The procedures with which we measure, aggregate and manage risks are enhanced continually on a best practice basis. In this respect, we are closely integrated into the risk management systems of the Commerzbank Group.

The comdirect bank Board of Managing Directors is responsible for the risk management and controlling system of the comdirect group. The Board specifies the permissible total level of risk and its allocation across the individual risk types and business divisions. The Internal Capital Adequacy Assessment Process (ICAAP) ensures that sufficient capital is available to cover all material risks.

At comdirect bank, the CFO (Chief Financial Officer) – independent from the overall responsibility of the Board of Managing Directors – is responsible for monitoring and implementing the risk strategy.

The task of risk management at the comdirect group is to identify, measure, assess and manage as well as monitor and communicate all risks in the respective risk category. The management is carried out partly on a centralised basis, for market and liquidity risks for instance, and partly on a decentralised basis, as in the case of operational risks. With the aid of a risk inventory we obtain a regular overview of the main risks and examine whether and to what extent these risks may adversely affect the capital levels, earnings situation or liquidity situation. Taking account of risk concentrations, tolerances are set for all material risks and the effect of such concentrations is also analysed across all risk types.

The Risk Management department is responsible for risk controlling. It monitors, evaluates and aggregates risks for the bank as a whole. In addition, the department implements the corresponding regulatory requirements and monitors compliance with them.

Comprehensive and up-to-date risk reporting forms an essential part of the risk management and controlling system. The Board of Managing Directors receives regular risk status reports. Major risk indicators are included in the overall management of the comdirect group. Risk status reports provide information on the current development of major risk categories among other things and are therefore integral to our early risk warning and monitoring system. Thus we promptly identify developments that require countermeasures.

Internal Audit regularly checks the functionality and suitability of risk management activities pursuant to the minimum requirements for risk management (MaRisk).

Inclusion in the Commerzbank Group

The comdirect group is included in the risk management processes of the Commerzbank Group to identify, measure, assess and manage as well as monitor and communicate risks. Against this backdrop, the bank makes use of the “waiver regulation” under Section 2a of the German Banking Act (KWG). As a subsidiary of Commerzbank AG, it is exempt from applying the regulations of Section 10 of the German Banking Act (KWG) (Reporting of own funds to the Federal Financial Supervisory Authority) and Section 13 of the German Banking Act (KWG) (Notification of major loans of more than 10% of the liable capital to Deutsche Bundesbank).

As a result of this integration, comdirect bank meets the requirements in the three pillars of Basel II as follows:

  • The first pillar of Basel II relates to the approaches for measuring credit, market and operational risk, which are used to calculate the minimum capital requirements of a bank. For internal management purposes as well as for the Commerzbank Group’s risk management, we determine the overall risk position of the comdirect group using advanced procedures. Credit risk is mostly assessed using the Advanced Internal Ratings Based Approach (AIRB). With regard to operational risks, the comdirect group uses the Advanced Measurement Approach (AMA).
  • The minimum requirements for risk management for banks and financial services institutions (MaRisk), the second pillar of Basel II, are also complied with throughout the comdirect group. These relate to the implementation of internal procedures, which are to be checked by the regulatory authorities and are used to assess the risk situation and appropriate capital levels, which are based on the respective risk profile of the comdirect group.
  • The third pillar of Basel II relates to the disclosure of risks pursuant to the detailed regulations under the Solvency Regulation (SolvV). Here the parent company, Commerzbank AG, meets the requirements for compliance for the Commerzbank Group as a whole.

Adjustments during the reporting year

During the reporting year, we completed implementation of the revised version of the MaRisk regulations that came into force on 15 December 2010 and made the corresponding changes to our risk-bearing capability calculation. These relate in particular to taking account of strategic and macroeconomic risks as well as extending the stress tests. We also include risk concentrations between and within the individual risks types in these tests and additionally analyse the potential causes of risks that jeopardise the existence of the bank using inverse stress tests (see Risk measurement concepts).

Furthermore, since the start of financial year 2011 we have been including model risks (close-out risks) in our risk-bearing capability assessment. These model risks arise when investing customer deposits due on demand, where certain assumptions have been made regarding customer behaviour (deposit models). The risks stem from the fact that the behaviour of customers in the future could differ from the behaviour assumed in the models and that outflows from deposits could exceed the level forecast for example. The resultant loss risks constitute a considerably risk category in the comdirect group in the context of the risk-bearing capability calculation (see Risk measurement concepts).

For the first time, credit spread risks from intragroup securities were taken into account when determining the market price risk (stand-alone perspective). These two measures have increased the comdirect group’s economically required capital whereas material risk positions have not been changed.

The further development of the Internal Control System (ICS) necessary to comply with stricter requirements was completed in the first quarter of 2011. All of the relevant business processes in the comdirect group were surveyed and evaluated and control tests were introduced.