Basel IV in all but name

Deutsche Bank alone estimates around Euros 100 billion regulation driven increase in Risk weighted assets by 2020.

The Basel Committee recently released the Quantitative Impact Study for the Fundamental Review of the Trading Book (FRTB) which should go live in 2019. As the chart below shows banks (from a sample of 44) could see market risk capital charges nearly double (mean increase of 174%) but the large investment banks could see charges increase 5 or even 8 times if they don’t adapt their portfolio.

Graph-from-Quantitative-Impact-Study

The bank showing an 8 fold increase is not named but Deutsche seems an obvious contender. This is both because it is Europe’s largest investment bank and because of the warnings given in the recent Strategy Presentation – see chart from the presentation below. Market risk changes will come on top of increases in operational risk capital charges, driven by litigation, and credit and counterparty risk, driven by expected floors.

Deutsche-RWA-eg

Deutsche plans to end up in 2020 with a similar level of risk weighted assets as it has today (c. Euros 410 billion) meaning that all the regulatory inflation will have to be matched by asset sales and other downsizing.