Management of reputational risks: Strengthening trust in the Bank
Our business model is built on public trust, so it is essential that in addition to standard risk inherent to our business, we avoid risks that can undermine trust.
Effective risk management fundamentally stems from employees internalizing their responsibility for the bank’s success and its reputation. Deutsche Bank introduced a group-wide program for managing reputational risks in 2005. The program provides guidelines on the identification, escalation and resolution of reputational risks that might arise from the business activities of the Bank. The program is continually revised.
Protecting the reputation of the Bank is the duty of every employee as a matter of principle. From the organizational perspective, our business divisions bear the main responsibility for dealing with reputational risks. They are supported by control teams from our Legal, Compliance and Group Sustainability departments. Participation of Group Sustainability ensures that environmental, social and governance risks (ESG) are taken into account.
Our reputational risk management program policy
The guide includes questions such as:
- Is there any negative market intelligence relating to this client, the client’s
team or principals?
- Could the transaction be viewed as having no valid business purpose or
- Could the transaction be viewed by some as promoting activities considered
contrary to the “public good”?
- Are there any non-standard terms, or terms inconsistent with market norms?
- Does the transaction raise any actual or potential conflicts of interest?
- Does this transaction pose any significant environmental, health or safety risks?
Guidelines for specific sensitive topics or industries (such as defense equipment, pornography, betting and gambling) support this evaluation. The bank’s control groups (e. g. Compliance, AML & Financial Crime, Group Sustainability, Legal) are availablefor consultation and have a say on whether it is reasonable for the bank to pursue the business.
Our reputational risk framework
If our business managers identify any reputational risk, a further evaluation is required with more senior-level input. Guidelines for specific sensitive topics or industries (such as defense equipment, pornography, betting and gambling) support this evaluation. The bank’s control groups (e. g. Compliance, AML & Financial Crime, Group Sustainability, Legal) are available for consultation and have a say on whether it is reasonable for the bank to pursue the business. Doing the right thing leaves room for discretion and may result in a variety of views. Thus, a case can ultimately be escalated to the Group Reputational Risk Committee (GRRC). The GRRC is a subcommittee of the bank’s Risk Executive Committee and is co-chaired by two members of the Management Board. Other GRRC members include the Chief Risk Officer, the Global Head of Compliance and the General Counsel, among others.
Reputational risk management in practice
One of our teams in the EMEA (Europe, Middle-East and Africa) region had the opportunity to purchase an interesting portfolio of non-performing real-estate loans (NPL) in a country that suffered from the real-estate crisis. The banking sector was heavily criticized by the public for mismanagement during the crisis. The transaction itself would have provided a meaningful revenue opportunity for Deutsche Bank, was well structured and would have increased the bank’s market share in that region significantly. The NPL transaction was reviewed, however, due to strong concerns regarding public perception and regional reputation. The transaction was not approved.
Strict guidelines for loans
Our credit guidelines constitute an important element of our management of reputational risks. They apply not only to financial risks but also include clear requirements on issues such as arms, pornography, betting and gambling, environmental protection and embargoes. Business transactions that involve one or several of these aspects require a special evaluation by senior management. Every year the Group Reputational Risk Committee and the Group Credit Policy Committee review the credit guidelines and consider whether they remain in line with the relevant standards of the Bank.