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Risk measurement concepts

To measure the risk situation we use both the expected loss and the unexpected loss in various market scenarios.

The expected loss describes the loss that can be expected within a year based on empirical values, for example on past losses. We calculate this figure for credit risks and operational risks.

We determine the unexpected loss on a regular basis and aggregate it to form the overall risk position; this includes market risk, model risk, credit risk and operational risk as well as business risk. The overall risk position is measured uniformly using the economically required capital, i.e. the amount of capital that has to be maintained to cover unexpected losses from positions involving risk at a given probability within a year. This calculation also includes risk categories that do not require equity backing under banking regulations or do not require full capital backing, but which, from any economic viewpoint, represent potential material risk (market risks, model risks and business risks).

comdirect bank adopts a very conservative approach when calculating the economically required capital using the value-at-risk (VaR) approach. On the one hand, we generally use a confidence level of 99.91% with a holding period of one year when calculating the VaR. On the other, with regard to the aggregation of the individual risk types to form the overall risk position, comdirect bank does not take into account any correlations that have a risk-mitigating effect.

The overall risk position is matched by the risk coverage potential, which comprises the (forecast) after-tax profit, subscribed capital, open reserves (capital and retained earnings) and the revaluation reserve after tax. Other intangible assets such as licences to use software or internally generated software and deferred taxes are deducted from the risk coverage potential as adjustment items. The risk-bearing capability is guaranteed when utilisation of the risk coverage potential by the overall risk position of the bank stands at less than 100%. Countermeasures are initiated as soon as the utilisation level reaches the defined early warning thresholds. Corresponding early warning thresholds are also defined for each risk category.

The value-at-risk model indicates the potential loss under predominantly historically observed market conditions. In order to assess potential extreme market developments as well, we carry out additional stress tests.

Integrated stress tests that cover all the risk types are an integral part of comdirect’s risk management and ICAAP process. They are used to examine the resilience of comdirect's portfolio under extreme, but plausible, scenarios that have a low probability of occurrence. To carry out the integrated stress tests, comdirect uses macroeconomic scenario analyses in accordance with MaRisk. These are applied at comdirect group level. They include all risks that are deemed material in accordance with the risk inventory carried out on a regular basis. As well as determining the economically required capital, the results of the integrated stress tests are taken into account and limited as part of the risk-bearing capability calculation.

In addition to the macroeconomic stress tests, we carry out specific stress tests for each risk type as part of operational management. These take into consideration both historical and hypothetical extreme events. The third type of stress test carried out is the inverse stress test in accordance with MaRisk. Based on the sensitivity and scenario analyses, extreme events are identified for each risk type that would jeopardise the existence of the comdirect group if they occurred. The aim of these analyses is to critically assess the results and any associated potential implications for the business model and risk management of the comdirect group.