DEUTSCHE BANK AND THE ROAD TO BASEL III

The case "Deutsche Bank and Road to Basel III" describes how Deutsche Bank's
performance will be influenced by changes in the current implementation of an
updated regulatory framework which is Basel III. The Basel Committee began to
formulate a new model in which its main aim is to increase the transparency and
quality of the banking institution as a whole. The new framework was approved in
2010 and would be phased in 2013, with full implementation of the framework in
2019.

The Basel III was intended to update and improve the financial institutions'
legislation, risk management and supervision. The principal area protected by
Basel III is the capital element divided into two parts Tier 1 and Tier 2.

The Tier 1 consisted of common equity and additional Tier 1 capital in which the
overall Tier 1 capital rose from 4.0 percent to 6.0 percent while the risk asset
weighed between 9.5 percent and 13.5 percent. This meant that Deutsche Bank
would face some challenges in 2013 as well as gaining opportunities due to the
implementation of Basel III. Investors were worried that the Deutsche Bank would
have to acquire fresh equity capital to meet the capital requirements. This will lead
to a decline in Deutsche Bank's profitability as it goes forward. The adjustments on
Basel III would result in a rise in the weight of the risk-asset while the banking
industry’s ROE would decline. In July 2012, the Deutsche Bank was able to face
the difficulties due to the introduction of Basel III as it had a total tier ratio of 13.6
per cent based on risk weight assets estimated at about EUR 373 billion according
to Basil II. In early 2013, the Deutsche Bank was able to boost risk-weighted assets
to EUR 488 billion and its core tier ratio to 7.2 percent by reducing them from 10.2
percent under Basel III regulations. The core Tier 1 that the Basel III needed to
reach 9.5% before the Basel III rules were fully implemented before 2019. The
other challenges it faced was the decision of raising the additional capital by
EUR9.8 billion which made them occupy a great position in the home market
which is in Germany. The Deutsche after observing the benefits of investment
banking in the market transformed to investment banking.

The increase in the leverage and coverage ratio or the bank's liquidity from 4% to
4.5% results in the banks being required to maintain a percentage of liquid security
like money to be able to cope during the financial downturns. Also the changes in
the framework of the Basel III would result significantly to decline in the ROE for
the entire banking industry.

A solution for this is to make an issue for equity or can use the retained earnings or
it can rely on the debt instruments thus will help in increasing the Return on equity
and Earnings per share.

The rise in total Tier 1 capital creates an opportunity for the Deutsche Bank to sell
more of its shares to the people. The Overall Tier 1 Capital was raised from 4.0%
to 6.0%.

The increase in the risk-asset weight would result in the bank in taking more risks
towards its investment business by taking more securities of options, futures and
forwards to improve its returns.

Deutsche Bank’s decision on the new implementation of Basel III, I think I need to
rely on the decisions it took to introduce Basel III to concentrate on strengthening
retail banking on the European market.