• Co-CEO Cryan said he is relying on regulator's impact estimate
  • ISDA has warned capital charges could still ratchet higher

Deutsche Bank AG is buying into global regulators’ pledge to limit the capital impact on lenders as they wrap up their post-crisis rule revamp.

After some European bank executives warned last year that the mass of work on risk-modeling and capital assessment in the pipeline amounted to a new wave of costly regulation, the Basel Committee on Banking Supervision began 2016 by assuring the industry that it “will focus on not significantly increasing overall capital requirements.” Deutsche Bank’s top executives said on Thursday that they believe the regulator will be true to its word.

“We’re not making any changes to our plans,” co-Chief Executive Officer John Cryan said on a call with analysts after the bank reported a surprise profit for the first quarter. “We’re relying therefore on the strong statements” from the Basel Committee’s oversight body that there will be “no net impact on capital requirements for banks,” he said.

The Basel Committee declined to comment on the Deutsche Bank comments.

The Basel group, whose members include the European Central Bank and the U.S. Federal Reserve, set tougher market-risk rules for banks in January that will result in a weighted mean increase of about 40 percent in trading-book capital charges, according to the regulator. Revised rules on credit and operational risks are in the works.

Jigsaw Puzzle

Banks have bemoaned the implementation and compliance costs that loom with the coming regulations. The International Swaps and Derivatives Association has compared the disparate capital regulations to a jigsaw puzzle that takes time to fit together and see the full picture and impact. The trade association, which represents large banks in the derivatives market, said the new regulations contrast with Basel’s public comments.

“This is where it’s hard to see how the pieces come together,” ISDA said.

ISDA this month released findings of a survey of 21 banks and said Basel’s market risk rules, known as the Fundamental Review of the Trading Book, could result in firms needing as much as 2.4 times current capital levels for bonds, derivatives and other securities held for trading.

Marcus Schenck, Deutsche Bank’s chief financial officer, said Basel’s trading rule “came out in a way we feel comfortable with.” While governments must write the market-risk rules into their national laws by Jan. 1, 2019, banks have until the end of that year to begin regulatory reporting based on the rules. That gives Deutsche Bank more time than expected to build up capital, Schenck said.

Deutsche Bank assumes a similar schedule for the Basel Committee’s rules on assessing credit and operational risk, the CFO said.

The bank’s common equity Tier 1 ratio, a key measure of financial strength, fell to 10.7 percent at the end of March from 11.1 percent three months previously. Schenck said he doesn’t expect the CET1 ratio to rise this year from 2015, citing “material” legal expenses.

“I think we have at least one more year to get to the relevant ratios compared to what we had expected in October of last year,” Schenck said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE