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28 Management report – münchener Hypothekenbank eg l annual report 2013 as well as its domestic and international commercial financing business. This means that we have reached the so-called “refer- ence point” in the process. The only element still awaiting ap- proval before we can conclude the IRBA project is our Swiss retail business. We will exceed the so-called “exit threshold” as soon as we complete this step, which will take place no later than the end of 2016. We have been participating in the Basel Committee on Banking Supervision (BCBS) monitoring of Basel III for a number of years. In doing so key figures like the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are calculated several times a year. The insights gained make it possible to assess the effects of future binding minimum standards before they become legal requirements and, if necessary, make adjustments as needed. Münchener Hypothekenbank’s voluntarily participation has en- abled it to continually monitor all important key figures for a long time and use them for managing the bank. Calculations made to date reveal that the LCR, which is steadily rising and which must be observed starting in 2015, is already fulfilled over a period of numerous years. We currently can almost meet the NSFR figure – without having taken any additional measures. This figure becomes valid in 2018 and has thus far been foreseen to serve as only an observation ratio. However, in this case we anticipate that the long observation phase will make adjustments possible similar to those made to the LCR. The introduction of a Leverage Ratio is also planned within the framework of Basel III. This figure sets the maximum limit for a bank’s total lending volume in relationship to its equity capital. The precise configuration of the Leverage Ratio is still under dis- cussion. MünchenerHyp anticipates that a distinction will be made between different business models so that a low-risk mort- gage business with matching refinancing will not be treated the same as high-risk investments. Low-risk areas of business can only generate appropriate yields if the required level of under- lying equity capital is kept at a correspondingly low level that reflects the risks involved. In contrast, inappropriately high levels of required equity capital lead to accepting higher risks in order to generate sufficient yields for the equity capital provider. We do not believe that this can be the reason and intent behind the introduction of a Leverage Ratio. We are attentively following the current discussions and publi- cations of various authorities regarding Basel III. It is difficult to comprehensively prepare to meet future requirements at this time as widely varying positions are still held by the different institutions involved in the current discussions at national, Eu- ropean and international levels. For this reason we will continue to prepare to the greatest extent possible, although we will wait to implement specific target measures until the final version of the set of rules has been approved. As the example of LCR shows, significant changes can still occur at the last minute. We antici- pate that the regulators will give us sufficient time to implement the final measures. New subject areas related to the introduction of Basel III were, and are being, implemented in various projects. Up until today all of the known aspects were implemented on time. The enor- mous variety of requirements mandated by the supervisory au- thority does, however, pose a major challenge to a bank of our size as has led to significant costs. Single Supervisory System for EU Banks In October 2013 the ECB published a list of 124 banking groups that it will supervise directly within the framework of a single supervisory mechanism as of November 2014. MünchenerHyp is on this list as it meets the criteria of having more than € 30 billion in total assets. Prior to the ECB assuming its supervisory tasks it will conduct a comprehensive assessment, including an intensive audit of the Bank’s balance sheet, as well as a stress test. Beyond this, banks will have to meet substantially tougher equi- ty capital requirements including minimum 8 percent common equity Tier 1 capital ratio, which will have to be met as of Novem- ber 2014. The planned regulations linked to the Capital Require- ments Regulation (CRR) and the Capital Requirements Directive (CRD IV) had previously allowed time until 2019 to meet a lower ratio of 7 percent for the same figure. Preparations for the audits to take place within the framework of the Comprehensive Assessments were already made last year and will now be successively carried out during the current busi- ness year. The Bank’s resources are heavily burdened by tasks re- lated to the Comprehensive Assessment in addition to incurring