Deutsche Bank : DB USA Corporation U.S. Liquidity Coverage Ratio Disclosures Q3 2020

DB USA Corporation

U.S. LIQUIDITY COVERAGE RATIO DISCLOSURES

For the quarter ended September 30, 2020

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Table of Contents
The Liquidity Coverage Ratio (LCR) ..............................................................................................	3
U.S. Disclosure Requirements .......................................................................................................	3
U.S. Qualitative Disclosures...........................................................................................................	4
Main drivers of LCR .......................................................................................................................	4
Composition of eligible HQLA........................................................................................................	4
Changes in LCR.............................................................................................................................	5
Other Liquidity Sources..................................................................................................................	5
Concentration of funding sources ..................................................................................................	5
Derivatives exposures and potential collateral calls ......................................................................	6
Currency mismatch in the LCR......................................................................................................	7
Cash Inflows ..................................................................................................................................	7
Liquidity Management....................................................................................................................	7
Liquidity Risk Management Framework.........................................................................................	8
Liquidity Stress Testing..................................................................................................................	8
U.S. Quantitative Disclosures.........................................................................................................	9

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The Liquidity Coverage Ratio (LCR)

The LCR is intended to promote the short-term resilience of a bank's liquidity risk profile over a 30 day stress scenario. The ratio is defined as the amount of High Quality Liquid Assets (HQLA) that could be used to raise liquidity, measured against the total volume of net cash outflows, arising from both actual and contingent exposures, projected over a 30 calendar-day period of significant stress. Banks are also required to take into account potential maturity mismatches between contractual outflows and inflows during the 30 day stress period.

Deutsche Bank (DB), a banking group domiciled in Germany1, is currently required to be compliant with the Liquidity Coverage Ratio (LCR) as outlined in the "Commission Delegated Regulation (EU) 2015/61 of October 10, 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions" and the corrigendum to "Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012", published on November 30, 2013.

The Basel Committee on Banking Supervision (BCBS) published the international liquidity standards in December 2010 as a part of the Basel III package and revised the liquidity standard in January 2013. On September 3, 2014, the U.S. regulators adopted a final rule that implements a quantitative liquidity requirement generally consistent with the LCR standard established by the BCBS. The final LCR rule applies to top-tier U.S. BHCs as well as depository institution subsidiaries of U.S. BHCs that meet the applicability criteria of the LCR rule.

The Enhanced Prudential Standards for Foreign Banking Organizations (FBOs) requires FBOs, including DB, with non-branch assets of $50 billion or more to form a U.S. Intermediate Holding Company (IHC) by July 01, 2016 to serve as the top-tier holding company for their non-branch U.S. subsidiaries. DB's U.S. IHC or DB USA Corporation (the Firm) became subject to the full LCR requirements effective April 01, 2017.

Subsequently, the Federal Reserve adopted the Tailoring Rule that introduces risk-based categories for determining scope, nature and applicability of requirements under the LCR rule and modifies the LCR requirements based on the category of the banking organizations. Under the Tailoring Rule, stringency of requirements increases based on measures of size, cross- jurisdictional activity, weighted short-term wholesale funding, nonbank assets and off-balance sheet exposures. Based on these new guidelines, which are effective December 31, 2019, the firm is categorized as a Category III bank and therefore reduced LCR requirement of 85% applies.

U.S. Disclosure Requirements

In December 2016, the Federal Reserve adopted a rule to implement public disclosure requirements (PDR) for the LCR. Under PDR, a BHC with $50 billion or more in consolidated assets or $10 billion or more in foreign exposure is required to disclose publicly, on a quarterly basis, quantitative information about its LCR calculation and a discussion of the factors that have a significant effect on its LCR. Presently, the Firm is the only DB U.S. entity that is subject to these disclosure requirements.

1 Deutsche Bank (DB) AG is a financial conglomerate as designated by the BaFin

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The information presented in this document is calculated in accordance with the U.S. LCR rule and presented in accordance with the LCR PDR, unless otherwise stated. Table 7 (lines 1 through

1. presents the Firm's LCR in the format provided in the LCR PDR. Tables 1 through 6 present a supplemental breakdown of the Firm's LCR components.

U.S. Qualitative Disclosures

Main drivers of LCR

The table below summarizes the Firm's average LCR for the three months ended September 30, 2020.

Table 1: Liquidity Coverage Ratio
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
HQLA1	21,916
Net cash outflows	12,841
LCR	171%
Excess HQLA1	9,075

(1) Excludes excess HQLA held at subsidiaries that are not transferable

In the table above, HQLA is calculated after applying regulatory haircuts to eligible assets as prescribed by the LCR rule. Similarly, the Firm calculates its outflow and inflow amounts by applying the standardized set of regulatory outflow and inflow rates to various asset and liability balances, including off-balance-sheet commitments, as prescribed in the LCR rule.

The firm's average daily LCR for the three months ended September 30, 2020 was 171%, which is largely driven by:

• HQLA, which consists of cash with the Federal Reserve Bank, U.S. Treasury securities purchased outright and via reverse repurchase transactions collateralized by U.S. Treasury securities;
• Net cash outflows primarily related to operational and non-operational deposits and to a lesser degree, secured wholesale funding and asset exchange transactions.

Composition of eligible HQLA

HQLA represent the sum of eligible Level 1 liquid assets, Level 2A liquid assets, and Level 2B liquid assets, eligible for inclusion in the LCR after prescribed haircuts and asset composition limits. Eligible HQLA must also meet specific operational and general requirements, as prescribed under the LCR rule. Presently, only Level 1 liquid assets meet all the requirements, therefore the liquidity buffer is comprised of Level 1 liquid assets exclusively.

The table below presents the weighted average amounts of the Firm's HQLA segregated into cash and eligible securities components for the three months ended September 30, 2020.

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Table 2: High Quality Liquid Assets
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
Eligible Reserve Bank Balances1	11,296
Eligible Level 1 Securities2	22,271
Less: Excess HQLA held at subsidiaries and are not transferable3	(11,651)
Total Eligible Level 1 Assets	21,916

1. Comprise of deposits with Federal Reserve Bank
2. Represents U.S. Treasury Securities
3. Comprise of both Reserve Bank Balances and Treasury Securities

Changes in LCR

As given above in Table 1, the Firm's average LCR for three months ended September 30, 2020 was 171% which represents a strong average LCR position and well above the revised required minimum of 85%. The average LCR for the quarter ended September 30, 2020 marginally decreased to 171% compared to an average LCR of 173% for the quarter ended June 30, 2020 due to increase in net cash outflows which grew by $1.5 billion partially offset by higher HQLA. The increase in net cash outflows is primarily driven by higher non-operational deposit balances.

Other Liquidity Sources

In addition to the above mentioned HQLA, the Firm had approximately $11.7 billion of HQLA held at subsidiaries that are not transferable, but are available to raise liquidity at the subsidiaries, if required.

Even though the Firm has significant holdings in other LCR asset classes, those assets are not considered under the control of the Firm's liquidity management function, which is one of the eligibility criteria set forth in the LCR rule, hence such asset holdings are not considered eligible HQLA and are not part of the liquidity buffer currently. These assets can also be sold or lent as collateral for secured funding to generate liquidity.

Concentration of funding sources

The Firm has a wide range of funding sources, including retail and institutional deposits, secured and unsecured wholesale funding, comprised primarily of large deposits, and funding from DB Group. The Firm's most stable funding sources come from transaction banking clients.

Below is a summary of deposit related cash outflows in accordance with the LCR rule.

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Table 3: Deposits
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
Cash outflows from:
Non-Operational deposits	10,115
Operational deposits	2,998
Brokered deposit	61
Retail deposit	34
Total deposit cash outflows	13,208

The Firm manages liquidity and funding, in accordance with its specific risk appetite approved by the entities' Boards of Directors across a range of relevant metrics, and implements a number of tools to monitor these and ensure compliance.

The following table summarizes cash outflows excluding deposits from retail customers and counterparties and derivatives.

Table 4: Other Outflows
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
Cash outflows from:
Secured funding	6,764
Unsecured funding1	13,113
Off Balance sheet commitments	805
Other	2
Total other cash outflows	20,684

1. Includes non-operational and operational deposits shown in Table 3 above
   Derivatives exposures and potential collateral calls

Derivative transaction means a financial contract whose value is derived from the values of one or more underlying assets, reference rates, or indices of asset values or reference rates. Derivative contracts include interest rate derivative contracts, exchange rate derivative contracts, equity derivative contracts, commodity derivative contracts, credit derivative contracts, forward contracts and any other instrument that poses similar counterparty credit risks.

The Firm enters into derivative transactions for two purposes; market making or managing own risk exposures. These derivatives are executed with third parties and with other DB affiliates outside the IHC consolidated group. The Firm may be required to post initial or variation margin with regards to such derivative exposures. Additionally, collateral calls could also be driven as a result of a downgrade to DB's external credit ratings.

The following table summarizes derivatives related net cash outflows for the three months ended September 30, 2020.

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Table 5: Derivatives
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
Outflows from derivative exposures and other collateral
requirements	824
Less: Inflows from derivatives	1
Net derivatives cash outflows	823

Currency mismatch in the LCR

In the US, HQLA and net outflows are primarily in US dollars, however a nominal portion of cash flows (<2% of cash outflows) relate to currencies other than US dollars. These non-US dollar based cash flows give rise to currency mismatches, such exposures are closely monitored and strategies are adopted to minimize the potential impact of such exposures.

Cash Inflows

Allowable inflow amounts are capped at 75 percent of aggregate cash outflows to ensure that the banks must hold a minimum HQLA amount equal to 25 percent of total cash outflows that will be available during a stress period. However, there are certain exceptions which include:

• Certain foreign currency exchange derivative cash flows are to be treated on a net basis and have therefore effectively been removed from the gross inflow cap calculation, and
• The inflow cap does not apply to the calculation of the maturity mismatch add-on.

The total cash inflows amounted to $8.9 billion which is the lesser of the cumulative cash inflows and 75% cap of the cumulative cash outflows. Given that inflows are well below 75% of cumulative cash outflows, the inflow cap is not currently binding for the Firm.

The following table summarizes cash inflows excluding retail lending and derivatives.

Table 6: Cash Inflows
Average Weighted Amounts	Three months ended
($ in millions)	September 30, 2020
Cash inflows from:
Secured lending	7,639
Unsecured lending	1,157
Other	56
Total cash inflows	8,852

Liquidity Management

Liquidity risk is the risk arising from the potential inability to meet all payment obligations when they come due. The US Liquidity Management (LM) function of the Firm is responsible for ensuring that the Firm can fulfill its payment obligations at all times and can manage liquidity and funding risks within its risk appetite.

To meet the objective, the Firm executes upon its liquidity management framework. The framework is comprised of six core elements - risk appetite, risk identification, risk measurement,

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risk monitoring, risk management, and governance and oversight. These six elements of the liquidity management framework provide LM the processes, tools, and oversight to effectively manage the liquidity position of the Firm to meet its day-to-day payment obligations.

Treasury manages liquidity and funding, in accordance with the Management Board-approved risk appetite across a range of relevant metrics, and implements a number of tools to monitor these and ensure compliance. In addition, Treasury works closely with Liquidity Risk Management (LRM), and the business, to analyze and understand the underlying liquidity characteristics of the business portfolios. These parties are engaged in regular and frequent dialogue to understand changes in the Firm's position arising from business activities and market circumstances. Dedicated business targets are allocated to ensure that the Firm operates within its overall liquidity and funding appetite. LM projects the development of the key liquidity and funding metrics based on the underlying business plans to ensure that the plan is in compliance with the Firm's risk appetite.

Liquidity Risk Management Framework

The LRM is an independent review function operating as part of the second line of defense, and is responsible for overseeing and evaluating the effectiveness of the liquidity risk management activities performed by U.S. Treasury - Liquidity Management. Through executing on its oversight and validation activities, LRM plays a key role in supporting the U.S. Chief Risk Officer in overseeing and maintaining the liquidity risk management framework.

Treasury is mandated to manage the overall liquidity and funding position of the Firm. LRM acts as an independent control function, and is responsible for reviewing the liquidity risk framework, proposing the risk appetite to the US Risk Committees and validating liquidity risk methodologies which are developed by Treasury, to measure and manage the liquidity risk profile.

The Management Board is informed of performance against the risk appetite metrics, via a weekly Liquidity Dashboard. In addition to this, liquidity is also monitored through early warning indicators on a daily basis by senior leadership team of the Firm. Escalations are reported on a timely basis, in case of breaches on the internal limits.

Liquidity Stress Testing

Within the risk measurement element of the liquidity management framework, liquidity stress testing is a core tool for measuring liquidity risk and evaluating the Firm's liquidity position. The Firm uses both regulatory, (i.e. LCR) and internally designed stress tests. The Firm uses stress testing to determine whether the current liquidity position is in line with the relevant risk appetite, set the liquidity reserve requirements and help identify potential future liquidity shortfalls.

Internal stress testing models calculate the Firm's net liquidity position (i.e., measured net stress cash flows against liquidity buffers held) under multiple different scenarios by applying particular contractual and behavioral assumptions to the Firm's assets, liabilities and off-balance sheet exposures which are identified to have liquidity risk. Stress testing is run daily and models the Firm's net liquidity position under stress out to one year.

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U.S. Quantitative Disclosures

The following table presents Firm's average LCR, and average unweighted and weighted amount of HQLA, cash outflows and cash inflows, for the quarter ended September 30, 2020.

Table 7:

	For the quarter ended September 30, 2020 ($ in millions)	Average Unweighted	Average Weighted
	Amount	Amount
HIGH‐QUALITY LIQUID ASSETS (1)
1	Total eligible high‐quality liquid assets (HQLA), of which:	21,916	21,916
2	Eligible level 1 liquid assets	21,916	21,916
3	Eligible level 2A liquid assets	‐	‐
4	Eligible level 2B liquid assets	‐	‐
CASH OUTFLOW AMOUNTS
5	Deposit outflow from retail customers and counterparties, of which:	546	95
6	Stable retail deposit outflow	75	2
7	Other retail funding outflow	317	32
8	Brokered deposit outflow	154	61
9	Unsecured wholesale funding outflow, of which:	23,646	13,113
10	Operational deposit outflow	12,001	2,998
11	Non‐operational funding outflow	11,645	10,115
12	Unsecured debt outflow	‐	‐
13	Secured wholesale funding and asset exchange outflow	101,398	6,764
14	Additional outflow requirements, of which:	5,787	1,629
15	Outflow related to derivative exposures and other collateral requirements	2,887	824
16	Outflow related to credit and liquidity facilities including unconsolidated structured transactions and
	mortgage commitments	2,900	805
17	Other contractual funding obligation outflow	2	2
18	Other contingent funding obligations outflow	‐	‐
19	TOTAL CASH OUTFLOW	131,379	21,603
CASH INFLOW AMOUNTS
20	Secured lending and asset exchange cash inflow	113,343	7,639
21	Retail cash inflow	31	16
22	Unsecured wholesale cash inflow	1,170	1,157
23	Other cash inflows, of which:	57	57
24	Net derivative cash inflow	1	1
25	Securities cash inflow	56	56
26	Broker‐dealer segregated account inflow	‐	‐
27	Other cash inflow	‐	‐
28	TOTAL CASH INFLOW	114,601	8,869
29	HQLA AMOUNT(1)		21,916
30	TOTAL NET CASH OUTFLOW AMOUNT EXCLUDING THE MATURITY MISMATCH ADD‐ON		12,734
31	MATURITY MISMATCH ADD‐ON		107
32	TOTAL NET CASH OUTFLOW AMOUNT		12,841
33	LIQUIDITY COVERAGE RATIO (%)		171%

1. HQLA figures have been adjusted for the trapped HQLA at the U.S. subsidaries
2. Numbers may not add due to rounding

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