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1 Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges Welcome!

2 Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges Agenda 6.30 – 6.35: Welcome - PRMIA Steering Committee member Donald Lawrence, UCL 6.35 – 6.45: Introduction to the day’s event by Vijay 6.45 – 7.30 (flexible): Opening remarks by Kumar (FSA) followed by Arno Commerzbank) 7.30 – 8.00 (flexible): Panel discussion 8.00 (flexible) onwards: Drinks at the Bar and networking

3 UCL - PRMIA Course A Complete Course in Risk Management 6 – 10 February, 2012, London Day 1: Foundations of Risk Measurement and Risk Finance Theory Day 2: Financial Markets & Instruments; Market Risk Management Day 3: Credit & Operational Risk Management Day 4: Capital Allocation and Liquidity Risk Management Day 5: Crisis Management and Non-Market Risk

4 Global Risk Conference Save the date! 10 th Anniversary PRMIA Global Risk Conference 14 th -16 th of May 2012 Marriot Marquis, NY Visit

5 Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges Arno Kratky - Head of Liquidity Analytics, Group Treasury, Commerzbank Kumar Tangri - Risk Specialist, ALM & Liquidity, FSA Vijay Krishnaswamy - Partner and Head of Enterprise Risk Management, Hymans Robertson

6 6 6 FTP regulations: A clear view on the horizon? Kumar Tangri

7 Today’s Agenda How are regulations incorporating FTP into liquidity management Will FTP play a larger role in future regulation Things to look out for

8 Overriding message Good Funds Transfer Pricing practice drives sustainable business models. Messages from Funds Transfer Pricing help develop strategy

9 9 Funds Transfer Pricing – what is it? Funds Transfer Pricing (FTP) is the mechanism by which the cost, benefits and risks of liquidity is reflected to a firm’s business lines – i.e. a sophisticated, forward looking pricing model. It is an internal measurement and allocation process that assigns a liquidity risk-adjusted profit contribution value to funds gathered and lent or invested by the firm. FTP is one aspect of full Transfer Pricing, which builds hurdle rates by inclusion of cost of capital (for instance for credit risk).

10 How are regulations incorporating FTP into liquidity management BIS - Principles for Sound Liquidity Risk Management and Supervision [Sept 2008] {Principle 4} FSA – PS09/16, Strengthening Liquidity Standards [October 2009] {BIPRU E} {BIPRU12.5.4R} EBA – CP36 Guidelines on Liquidity Cost Benefit Allocation [March 2010]

11 11 How are regulations incorporating FTP into liquidity management PS09/16, Strengthening Liquidity Standards {BIPRU E} States that firms should accurately quantify liquidity costs, benefits and risks for –product pricing –performance measurement and incentives –new product approval Applies to significant business activity – on and off balance sheet Consider FTP in normal and stressed conditions Clear and transparent – needs to be understood across the business

12 12 How are regulations incorporating FTP into liquidity management PS09/16, Strengthening Liquidity Standards {BIPRU12.5.4R} Requires firms to include assessment of compliance with BIPRU12.3 and BIPRU12.4 (systems and controls requirements) in the ILAA Compliance influences ILG

13 13 Will FTP play a larger role in future regulation Andrew Bailey, Executive Director, Bank of England and Director, UK Banks and Building Societies, FSA - Santander International Banking Conference 2009 “fire prevention is better than fire-fighting. We cannot justify having a banking system that depends on the use of public money to douse the fire when the crisis comes. And we also cannot allow conditions to exist where risks are taken on the basis that this backstop exists.” – Santander International Banking Conference 2009

14 14 Will FTP play a larger role in future regulation Good Funds Transfer Pricing practice drives sustainable business models. Withdrawal of taxpayer support – whether implicit or explicit Solo self sufficiency and sustainable business models Recovery and Resolution Planning

15 15 FSA Dear Treasurer letter on Funds Transfer Pricing (http://www.fsa.gov.uk/pubs/international/ftp_treasurer_letter.pdf) Benefits and pitfalls Benefits Informs business strategy by identifying the liquidity risk adjusted return from business activities. It helps prevent firms “sleep walking” into business where the true cost of funding is not covered. Contributes to a sustainable business model. Consequence of poor FTP Misallocation of liquidity resource – like capital, liquidity is scarce and needs to be used wisely. Conduct of loss making business or business where reward is not commensurate with risk. What do and will regulators expect

16 Things to look out for FTP governance – who owns and challenges the model? Can it be gamed or arbitraged? Is it transparent to stakeholders? Is treasury conflicted? What components are charged? Is the cost of liquidity buffer recharged? Are all aspects of liquidity risk accounted for? E.g. intra day liquidity, FSCS costs Is FTP accurate? Does it capture marginal costs? Can it be back tested? Are there un-priced risks? Approach to back book – does this distort new product pricing? What do and will regulators expect

17 Things to look out for How detailed is FTP? Is it granular enough to influence strategic and day to day transaction decisions? E.g. does it distinguish between asset origination which can be securitised versus assets that can’t? Does it incentivise appropriate business line behaviours? SHOULD ENCOURAGE APPROPRIATE INCENTIVES – TO WRITE AN OPTIMAL BUSINESS MIX FRAMEWORK SHOULD BE PROPORTIONATE TO FIRMS’ SCALE AND COMPLEXITY - E.g. Frequency with which prices are reviewed, frequency of back testing What do and will regulators expect

18 18 Funds Transfer Pricing – hurdle rate

19 19 FTP practices – marginal costing What do and will regulators expect

20 20 Funds Transfer Pricing – marginal costing Yield (%) Time (t) Marginal cost Weighted average cost, back book

21 21 Funds Transfer Pricing – marginal costing Pros – Correctly captures the cost of doing new business Cons Build up of residual unallocated P&L impact due to: – FTP model not accurately reflecting the actual cost of funding which might be incurred, e.g. model charges Libor + 150bp as marginal cost, but actual incurred cost was Libor + 160bp – management overlay, where a deliberate “subsidy” is embedded in pricing to incentivise behaviours, e.g. provide 50bp extra credit for stable retail deposits to incentivise gathering

22 22 Funds Transfer Pricing – marginal costing Time (t) Asset Liability FTP model assumptions Funding cost ≠ FTP model assumptions Funding tenor ≠ FTP model assumptions Yield (%) Time (t) Asset Liability Time (t) Asset Liability Maturity Yield (%) Maturity

23 Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges Arno Kratky Group Treasury PRMIA, London January 18th, 2012

24 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Agenda 1.The Regulatory Framework 3.Interplay with Fund Transfer Pricing 4.Implications for bank’s steering framework 2.Interplay with Internal Liquidity Management Framework

25 Group Treasury – Liquidity Analytics PRMIA, London January 18th, International standard: Basel III BCBS 164 / 189 LiquidityLeverage RatioCapital BCBS 165 / 188 More and better capital shift focus to core Tier I capital excluding hybrid capital deducting deferred tax assets minority interests not considered no Tier III component Higher RWA introduce credit value adjustment account for correlation risk higher charge on trading books (stress VaR, incremental risk) increase counterparty risk charge (incentivise central counterparts) Higher capital ratios Counter-cyclical capital buffers Introduction of general leverage ratio backstop ratio, not risk-based nominator is balance sheet total plus (1) off-balance positions, (2) un-netted derivatives, (3) notional of written credit derivatives denominator given by regulatory Tier I capital broadly in line with IFRS accounting Liquidity Coverage Ratio LCR Buffer to be held against short term liquidity shortages Net Stable Funding Ratio effectively limits maturity transformation Monitoring tools (information only) contractual maturity mismatch concentration of funding unencumbered assets market-based data Public disclosure European implementation: CRD 4 The building blocks of Basel III BCBS 189: Strengthening the resilience of the banking sector; BCBS 188: International framework for liquidity risk measurement, standards and monitoring

26 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Understanding the Regulator‘s Perspective of Basel III in a Nutshell Cash markets are fragile and can disappear quickly Too much maturity transformation is unhealthy for the financial system Interconnected financial sectors can collapse like a house of cards There is good banking business (loans, deposits, service real economy) There is bad banking business (prop trading, derivatives, casino)

27 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Liquidity Coverage Ratio / Liquidity Factors Impact on different product types on identical balance sheets: 30 one week repo on Government Bond liabilities Outflow 0 50 Government Bond assets Buffer 20 1) LCR 1000% but 30 3-months IB MM Outflow 0 40 O/N retail (stable) Outflow 2 liabilities assets 30 O/N IB MM 40 3 months retail (stable) No credit for short term secured funding of illiquid securities No credit for short term wholesale (interbank) funding 50 ABS Bond (illiquid) Buffer 0 30 one week repo on ABS Bond 50 Government Bond 50 ABS Bond (illiquid) Outflow 30 Buffer 50 LCR 83% Outflow 30 Outflow 0 Buffer 0 1) Only 20 units unencumbered since 30 funded via repo

28 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Net Stable Funding Ratio / Liquidity Factors Demonstration of the impact on different products and trading strategies: 3 Mon. CP non- financial Liabilities ASF 50% Corporate Bond AA Assets RSF 20% NSFR 250% 9 Mon. Repo Liabilities ASF 0% Corporate Bond AA Assets RSF 20% NSFR 0% Listed Equity Assets RSF 50% 9-months loan to Hedge Fund Assets RSF 0% 6m Reverse Repo on 3y Corp. Bond A+ Assets RSF 50% 3y Corp. Bond A+ funded via 6m Repo Assets RSF 0% Unencumbered mortgage loan Basel II KSA 35% >1y (independent on maturity) Assets RSF 65% Mortgage loan > 1y in covered pool funded by Covered Bond RSF 100% Assets + Overcollateralisation for target rating 5y Government Bond RSF 100% 2y Reverse Repo on Government Bond RSF 5%

29 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Liquidity Implications Non-Operational Corporate Deposits Interplay between LCR and NSFR for non-operational corporate deposits and (short-term) corporate loans (1) Buying Level 1 assets for the buffer itself generate an additional NSFR requirement 75m Level 1 Asset 100m Non-op. Corporate Deposit 50% => 50m Assets 100% => 75m Buffer (LCR) Liabilities ASF (NSFR) 75% => 75m Outflow (LCR) Remaining Cash 25m 25m Term Loan 100% => 25m RSF (NSFR) LCR = 75 = 100% NSFR = 50 28,75 = 174% Though there is headroom in the NSFR, the bank can not lend more (in cash) due to LCR restriction 5% => 3,75m RSF (NSFR) => 100m corporate deposits fund 25m term loans

30 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Interplay between LCR and NSFR for non-operational corporate deposits and (short-term) corporate loans (2) In order to use the NSFR ‘capacity’ the bank has to extend its balance sheet and borrow another 21m > 30days at extra costs, which also may compromise the bank’s liquidity ratio (and bank levy) 75m Level 1 Asset 100m Non-op. Corporate Deposit 50% => 50m Assets 100% => 75m Buffer (LCR) Liabilities ASF (NSFR) 75% => 75m Outflow (LCR) Remaining Cash 25m 46,25m Term Loan 100% => 46,25m RSF (NSFR) LCR = 75 = 100% NSFR = 50 = 100% 21.25m short term wholesale > 30d 0% => 0m Outflow (LCR) Extra cash 21.25m Liquidity Implications Non-Operational Corporate Deposits 5% => 3,75m RSF (NSFR) => 100m corporate deposits fund 46,25m term loans

31 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Bank B Equity 5 ASF(100%) 5 Stable Deposits 100 ASF(90%) = 90 LCR outflow (5%) = 5 Cash 5 LCR Buffer (100%) = 5 Retail Loan 100 RSF(85%) = 85 Bank A Cash 5 LCR Buffer (100%) = 5 Equity 5 ASF(100%) 5 Bank A Bank B LCR > 100% 100% NSFR > 100% 112% 1 Bank B borrowing funds via stable deposits (<1yr) and lending on term to retail customers (<1yr, but no inflows < 30days). Bank A just holds cash. Inefficient Liquidity Transfer within the Banking System (1/3)

32 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Bank BBank A Inefficient Liquidity Transfer within the Banking System (2/3) Bank B may transfer liquidity within the banking sector to Bank A via a long-term money market loan. Bank A invests the proceeds into the same portfolio of retail loans as before. RSF for Bank’s B loans increases from 85% to 100%, hence it can only lend 95 to Bank A (Bank B holds the balance in cash and hence increases its buffer). Using its cash balance of 5, Bank A can lend 100 to the private sector. Bank A Bank B LCR > 100% 200% NSFR 118% 100% 2 Equity 5 ASF (100%) 5 Stable Deposits 100 ASF(90%) = 90 LCR outflow (5%) = 5 Cash 10 LCR Buffer (100%) = 10 Loan to FI > 1yr 95 RSF(100%) = 95 Equity 5 ASF (100%) 5 Deposit from FI > 1yr 95 ASF(100%) = 95 Cash 0 LCR Buffer (100%) = 0 Retail Loan 100 RSF(85%) = 85 Liquidity Transfer of 95

33 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Bank BBank A Inefficient Liquidity Transfer within the Banking System (3/3) When the remaining maturity of the liquidity transfer runs below one year, the efficiency of the liquidity allocation gets impaired. Though the external economic position from the banking sector to the private sector remains unchanged, Bank A would now be required to take additional term funding to comply with the NSFR (inflating its balance sheet) passing on additional costs to its clients or has to withdraw its loans to its customers. Bank A Bank B LCR > 100% 200% NSFR 6% >> 100% 3 Equity 5 ASF (100%) 5 Stable Deposits 100 ASF(90%) = 90 LCR outflow (5%) = 5 Cash 10 LCR Buffer (100%) = 10 Loan to FI < 1yr 95 RSF(100%) = 0 Equity 5 ASF (100%) 5 Deposit from FI < 1yr 95 ASF(0%) = 0 Cash 0 LCR Buffer (100%) = 0 Retail Loan 100 RSF(85%) = 85

34 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Basel III – Commerzbank‘s Contribution to the Industry Dialogue Participation in Industry working groups Commerzbank plays an active role in liquidity working groups in various banking associations and bilateral discussions with aligned banks as well as with national regulators Banking Associations Aligned Banks Regulatory Authorities …and others…

35 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Agenda 1.The Regulatory Framework 3.Interplay with Fund Transfer Pricing 4.Implications for bank’s steering framework 2.Interplay with Internal Liquidity Management Framework

36 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Increasing Complexity Regulation is a moving target and subject to substantial changes Cumulative effects of regulation and associated (unintended) consequences on markets and banks business models are not well understood Ratios can not be seen in isolation but need to be managed simultaneously as ratios are interlinked. Measures which are positive for one ratio can turn out to have negative outcomes for another Regulatory (minimum) requirements will become more binding and need to be actively managed Banks are left with only little flexibility to manage cumulative effects effectively and to manage liquidity efficiently New regulations lead to alignment of liquidity management frameworks across banks which may result in more rather than less systemic risk

37 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Main Differences between Regulatory and Industry Approach Commerzbank SFR Industry Approach **) Regulatory Approach *) Operational Liquidity Management Continuous observation period up to 12 months Representation of cash flow over whole period Wider definition of liquid assets Consideration of central bank eligibility Consideration of interbank funding potential Decomposition into legal cashflows, behavioural adjustments and liquidity capacity Allows for different scenario calculation Measure expressed as surplus Commerzbank SFR Liquidity Coverage Ratio (LCR) Observation period 30 days 30 days point-in-time cumulative cash flow Narrow definition of liquid assets (no financials) Focus on secondary market liquidity No roll-over assumption for interbank funding Monoblock measure Only combined stress scenario Measure expressed as ratio Short term Long Term Commerzbank SFR Net Stable Funding Ratio (NSFR) Severe Stress scenario Minimum ratio 100% permanent Assets and liabilities differentiated by type of customer and relationship All securities require stable funding (haircut) Loan business funded as per roll-over fiction Matched funded structures not considered Contingent liquidity require stable funding Covered bonds (self-issued) not considered as stable funding if remaining maturity < 1 year, covered pool still attracts RSF Commerzbank SFR Structural Liquidity Management Less severe scenario w/o need for CM funding Target corridor instead of strict limits Assets and liabilities differentiated by product type and business owner Less liquid securities funded on haircut Core loan business requires stable funding Matched funded structures considered Contingent liquidity considered in stress portfolio Covered bonds (self-issued) considered (partly) as stable funding also if remaining maturity < 1 year. *) BCBS 188 as of December 2010 **) Observed methodology across firms

38 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Does Basel III overrule internal fund transfer pricing ? Internal treatment more conservative than BIII Internal treatment consistent with BIII Internal treatment more aggressive than BIII ( ) Is internal treatment still competitive ? Will change of internal treatment be challenged by supervisor ? Only little impact on running business The least need for adjustment  Regulatory liquidity requirement need to be ‘subsidized’ by other products Business in danger of being unprofitable How to migrate to regulatory compliance ?

39 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Does Basel III overrule Internal Funds Transfer Pricing ? Compliance of external and internal requirements on aggregate level Basel III LCR NSFR Internal operational structural Steering Independent Less complex, but steering in case of breaches less efficient

40 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Does Basel III overrule Internal Funds Transfer Pricing ? Compliance of external and internal requirements on product level External requirements have significant influence but steering mechanism is synchronized Basel III Assets Loans Deposits Facilities others... Internal Assets Loans Deposits Facilities others...

41 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Agenda 1.The Regulatory Framework 3.Interplay with Fund Transfer Pricing 4.Implications for bank’s steering framework 2.Interplay with Internal Liquidity Management Framework

42 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Integrated Steering Framework Basel III will influence internal processes, but is neither a blue-print for an internal steering system nor for an internal (liquidity) funds transfer price system

43 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Does Basel III overrule internal fund transfer pricing ? Major banks employ a liquidity management system and fund transfer pricing methodology similar to Basel 3 but which differ with regard to parameters. How does a bank cobe with the difference? Working example (asset vs asset): Corporat e Loan Credit Facility Options to deal with: 1. Treat Basel III / FTP separately -> two steering mechanism to follow 2. Only adobt induced regulatory ‚minimum‘ requirement -> conservative / expensive but aligned on product level 100 m 1bn 50m 5% 100 m 50% 100 % 50m 0% Basel III NSFR Internal Requirement 50m 100 m 50m Basel III NSFR Internal SF Ratio met at overall level but triggered by different products Loans -> ‚too expensive‘ Facilities -> ‚too cheap‘ Balance Sheet Volume RSF / internal requirement 3. Adjust FTP towards regulatory framework -> most consistent alignment, abandonment of own economic assessment, could be challenged by regulator

44 Group Treasury – Liquidity Analytics PRMIA, London January 18th, How to adopt Basel III to internal fund transfer pricing ? Banks need to set steering signals to their trading units to manage restructuring of balance sheets. Timing is an important component. How fast should banks implement Basel 3 rules in FTP? Working example: Funding of a financial bond Options: 1. Keep current FTP and adjust as late as possible -> inappropriate adjustment to Basel 3 2. Adjust FTP immediately for anticipated B 3 funding costs -> triggering of unintended consequences? 3. Phase-in higher charges over time and signal to the trading desks -> proportional migration to reg. environment Currently, banks fund financials short term as they are tradable in financial markets. However, Basel 3 requires term funding latest by Banks have to adust their funding accordingly: Tim e FTP (in bps) FTP (in bps) FTP (in bps)

45 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Agenda 1.The Regulatory Framework 3.Interplay with Fund Transfer Pricing 4.Implications for bank’s steering framework 2.Interplay with Internal Liquidity Management Framework

46 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Where the Business is affected Understand mechanics of Basel III and implications on business model Analyze portfolio mix and identify which products will have different treatment under regulatory rules compared to current internal treatment Consider potential pricing implications on anchor products (PK: retail loans & deposits, MSB: corporate loan book, C&M: trading portfolio, matched book, equity financing, ABF: secured financing) Understand need of customers and potential implication for end-users (to facilitate dialog with supervisors) Monitor competitors and their potential adjustments to product mix and/or pricing behavior Assess potential to pass on additional costs or anticipate structural changes to product mix Think about product innovation (but be aware of reputational limitation to exercise optionality)

47 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Behavioral Adaption to NSFR ASF RSF NSFR Isolines = 100% > 100% < 100% Improving NSFR 1 2 To improve a given NSFR (indicated by in the chart above) an institution has two options: 1.The institution can increase the ASF by adjusting the liability side of ist balance sheet (e.g. liabilities with higher roll-over factors or longer duration) 2.The institution can decrease the RSF by adjusting the asset side of ist balance sheet (e.g. assets with lower roll-over factors or shorter duration) NSFR = ASF RSF Potential Adjustments on Business Model compress net position of derivatives cut credit lines focus on advisory business revival of ‚originate and distribute‘ model Adjust Asset Side reduce maturities shift to assets with lower RSF Adjust Liability Side increase maturities shift to liabilities with higher ASF NSFR  impact on earnings impact on costs 

48 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Potential Steering Measures to Manage the LCR Hold more Cash Sell illiquid assets and buy level 1/2 assets Increase duration of liabilites (e.g. short term deposits) Liquidity buffer LCR = (Cash outflow – Cash inflow cap 75% ) ≤ 30d Levers to manage the ratio: Increase Liquidity buffer (-> higher costs) Decrease Cash outflow (-> lower returns) Increase Cash inflow (-> lower returns) Increase stability of deposits (e.g. stable retail deposits and wholesale operational accounts) Decrease duration of assets (e.g. short term loans) Decrease potencial liquidity drains (credit/ liquidity facilities)

49 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Potential Steering Measures to Manage the NSFR Originate new liabilities (and invest cash into assets with lower RSF) Securitize existing business which is already term funded (and keep existing funding) Substitute liabilities with short duration ( 1yr) Substitute liabilities with low ASF (wholesale) by liabilities with higher ASF (retail) Sell (non-level 1/2) assets Substitute assets with longer duration (>1yr) by assets with shorter duration (<1y) Substitute assets with high RSF (illiquid bonds, term loans, retail loans) by assets with lower RSF (0%-risk weight govies, short term loans to financial institutions) New asset business does not improve the ratio Available Stable Funding (ASF) NSFR = Required Stable Funding (RSF) In principle, the bank has two levers to manage the ratio: Increase ASF (-> higher costs) Decrease RSF (-> lower returns)

50 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Regulatory Requirements – More than a Compulsory Excercise Forthcoming regulation will not allow for an escape clause, allowing institution to apply internal liquidity models for regulatory reporting purposes instead of standardised external rules. Hence, liquidity regulation becomes instantaneous binding once they become effective. At the same time, financial markets evidence tightening liquidity situation expressed in terms of volatility, increasing liquidity premia and restraint liquidity supply, both in volume and tenor. The combination of increasing regulatory (minimum-) requirements and increasing liquidity costs necessitate an efficient management and steering of liquidity in order to achieve an optimal level of compliance and to avoid extra-ordinary liquidity buffers and associated costs. Liquidity requirements such as LCR and NSFR, as currently stipulated by known drafts of Basel III and CRD IV, respectively, will have much more significance for liquidity management and steering due to their pronounced stress-orientated design, which is more demanding than current national regulatory liquidity requirements in place

51 Group Treasury – Liquidity Analytics Contact: Arno Kratky Phone:+49 (0) Fax:+49 (0) Visitors’ address: Mainzer Landstrasse Frankfurt/Main Germany Postal address: Frankfurt/Main Germany Phone:

52 Group Treasury – Liquidity Analytics PRMIA, London January 18th, Disclaimer Investor Relations This presentation contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about Commerzbank’s beliefs and expectations and the assumptions underlying them. These statements are based on plans, estimates and projections as they are currently available to the management of Commerzbank. Forward-looking statements therefore speak only as of the date they are made, and Commerzbank undertakes no obligation to update publicly any of them in light of new information or future events. By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, among others, the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which Commerzbank derives a substantial portion of its revenues and in which it hold a substantial portion of its assets, the development of asset prices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of its strategic initiatives and the reliability of its risk management policies. In addition, this presentation contains financial and other information which has been derived from publicly available information disclosed by persons other than Commerzbank (“external data”). In particular, external data has been derived from industry and customer-related data and other calculations taken or derived from industry reports published by third parties, market research reports and commercial publications. Commercial publications generally state that the information they contain has originated from sources assumed to be reliable, but that the accuracy and completeness of such information is not guaranteed and that the calculations contained therein are based on a series of assumptions. The external data has not been independently verified by Commerzbank. Therefore, Commerzbank cannot assume any responsibility for the accuracy of the external data taken or derived from public sources.

53 Q&A Thank you for joining us. Please join us for the networking reception at the concluding of the session.


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