Unveils 2024 SREP stipulations on our platform
Deutsche Bank Faces New Prudential Capital Requirements from ECB
Starting January 1, 2024, Deutsche Bank (DBKGn.DE / NYSE: DB) will face new prudential capital requirements set by the European Central Bank (ECB). These changes aim to strengthen the bank's resilience and ensure capital conservation under stress conditions.
Pillar 2 Requirement (P2R-L) for the Leverage Ratio
One significant change is the introduction of a Pillar 2 requirement related to the leverage ratio, known as P2R-L. This means Deutsche Bank must maintain additional capital buffers beyond minimum regulatory levels to cover risks not fully captured by the standard leverage ratio calculation. The P2R-L acts as a safeguard to enhance the bank’s resilience to leverage-related risks.
Maximum Distributable Amount (MDA)
The MDA ties into the bank’s capital buffers, including the Pillar 2 requirements. If Deutsche Bank’s capital falls below certain thresholds, the MDA mechanism restricts the bank’s ability to make discretionary distributions such as dividends or share buybacks. This curbs capital outflows and helps preserve capital under stress.
Restrictions on Distributions
As a consequence of capital shortfalls relative to the Pillar 2 requirement or other capital buffers, Deutsche Bank will face regulatory limits on distributions (dividends, coupons on Additional Tier 1 instruments) to shareholders. These restrictions activate automatically when the capital level drops close to or below the MDA threshold tied to the P2R-L.
New P2R-L and P2R
The ECB has set a new P2R-L for the leverage ratio, effective January 1, 2024, which will be 10 basis points. Additionally, the Pillar 2 requirement (P2R) for Deutsche Bank will be reduced by five basis points, from its current level, effective January 1, 2024. The reduced P2R will further increase the bank’s buffers.
MDA and Distributions
The Maximum Distributable Amount (MDA) for Deutsche Bank will be calculated based on the new prudential capital requirements set by the ECB. These changes do not seem to have imposed any immediate restrictions on distributions for the bank.
Remuneration Structure
The new requirements do not seem to have imposed any immediate changes in the remuneration structure for Deutsche Bank.
Background
These changes are the result of the 2023 Supervisory Review and Evaluation Process (SREP) conducted by the ECB. The new prudential capital requirements for Deutsche Bank were announced on September 30, 2023, when the bank's last reported consolidated capital ratios were significantly above the supervisory requirements.
In summary, Deutsche Bank must hold additional capital under the Pillar 2 leverage ratio requirement (P2R-L), with this capital requirement affecting the bank's Maximum Distributable Amount and consequently imposing restrictions on dividend and other shareholder distributions should capital buffers weaken. This framework aims to strengthen bank resilience against leverage risk and to ensure capital conservation through distribution limits under stress conditions.
In light of the new prudential capital requirements announced by the European Central Bank (ECB), Deutsche Bank's business operations will be influenced by the additional capital buffers they must maintain due to the Pillar 2 requirement related to the leverage ratio (P2R-L), and potential future restrictions on distributions (dividends, coupons on Additional Tier 1 instruments) to shareholders under stress conditions. This capital structure adjustment, resulting from the 2023 Supervisory Review and Evaluation Process (SREP), represents an important financial aspect for Deutsche Bank.
