Royal Bank of Canada
Annual Report 2023

Our Purpose

Helping clients thrive andcommunities prosper
Guided by our Vision to be among the world’s most trusted
and successful financial institutions, and driven by our
Purpose, we aim to be:

We are guided by our Values: Client First Collaboration Accountability

In Canada:
the undisputed leader in financial services

In the United States:
the preferred partner to corporate, institutional and highnet worth clients and their businesses

In select global financial centres:
a leading financial services partner valued for our expertise Diversity & Inclusion Integrity

For more information on how weare leading with Purpose in creating
differentiated value for our clients,
communities, employees andshareholders, please visit
RBC Stories.

Connect with us
facebook.com/rbc

x.com/rbc

linkedin.com/company/rbc

instagram.com/rbc

youtube.com/user/RBC

tiktok.com/@rbc

2 | Royal Bank of Canada Annual Report 2023

Table of contents
CEO Letter

6

Chair Letter102023 Highlights

12Management’s Discussion and Analysis

22

Enhanced Disclosure Task Force Recommendations Index

132

Reports and Consolidated Financial Statements

133

Ten-Year Statistical Review235

Shareholder Information

236Royal Bank of Canada Annual Report 2023 | 3

Who we are
Royal Bank of Canada is a global financial
institution with a purpose-driven,principles-led approach to delivering
leading performance. Our success comesfrom the 94,000+ employees who leverage
their imaginations and insights to bring our
vision, values and strategy to life so we canhelp our clients thrive and communities
prosper. As Canada’s biggest bank andone of the largest in the world, based onmarket capitalization, we have a diversified
business model with a focus on innovationand providing exceptional experiences toour 17+ million clients in Canada, the U.S.
and 27 other countries.

17+ million
clients

4 | Royal Bank of Canada Annual Report 2023

94,000+employees

29

countries

Why invest?
 D
 iversified business model with scale and market-leading franchises that provide afull suite of products, advice and services for clients
 M
 arket-leading presence in Canada and an established multi-platform U.S. strategy with along runway for premium growth D ifferentiated technology and innovation investments that go beyond banking
 P remium ROE and disciplined expense management
 S trong balance sheet and prudent risk management
 L
 eading Canadian core deposit franchise that serves as a stable source of funding
 W ell-positioned for the evolving macro environment
 S
 tability and guidance of senior leadership and Board

Royal Bank of Canada Annual Report 2023 | 5

A message from

Dave McKay
President and CEO

Dear fellow shareholders,
We are living through a period of historic transition.
Higher interest rates and the rising cost of living is hurting
affordability for people and families, contributing to greater
inequalities in our communities and putting fiscal spending
pressures on governments. A never-ending cycle of technology
disruption is having a dramatic effect on the world of work andbusiness models everywhere. Ongoing conflicts across theglobe and an increasingly volatile geopolitical landscape are
dividing our society and eroding trust.
At the same time, our world is not moving fast enough toprepare humanity for the existential threat of climate change
and its impact on every aspect of our lives.
In times like these, we need to remember that historictransitions can lead to extraordinary opportunities formeaningful and positive change for people and communities
everywhere.
I write this letter as the steward of a bank that has stood
the test of time through periods of great change for over 150
years. Today, as our society navigates this changing world,
RBC’s role as a stabilizing force for our 17+ million clients andthe thousands of communities they call home matters morethan ever.
As a diverse collection of 94,000+ people in nearly 30
countries, RBC colleagues are guided and united by our
Purpose, and we share an important responsibility to help
enable short-term prosperity and long-term progress for
those we serve. To do that, we will continue to build our bankin a way that lives up to our foundational role of keeping
our economy moving and balancing the needs of our four
key stakeholders — clients, employees, communities andshareholders — through all credit and economic cycles.
In these challenging times, Team RBC remains steadfast
in our commitment to being a trusted advisor, helping
clients navigate risks and opportunities and make the best
decisions possible. Our incredible team will also continue
to bring that same dedication to building and growing
sustainable and inclusive communities.

6 | Royal Bank of Canada Annual Report 2023

I am grateful to work alongside our employees around theglobe. Together, we believe in the world-shaping power ofideas. This report showcases the deep commitment ourpeople have to making our bank an anchor of stability anda beacon of hope for the people, places and projects weproudly support.

The story of 2023
As always, our year was defined by our focus on doing theright thing by our clients and putting them first. This is aprinciple that is core to our culture and something that
we strive for each and every day. It means listening to theclients who put their trust in us, building products andservices to meet their needs and creating meaningful value
for today and tomorrow.
RBC’s ambition is to be among the world’s most trusted andsuccessful financial institutions. We ended the fiscal year
as a top 15 bank globally by market capitalization, including
top five in North America, and the highest valued bank on
a Price-to-Book Ratio among global banks.(1) We were also
honoured to once again be named the most valuable brandin Canada, and the fourth most valuable financial services
brand in the world.(2)In 2023, we generated earnings of nearly $15 billion and a
Return on Equity of 14.2 per cent, while ending the year witha strong CET1 ratio of 14.5 per cent — the highest in history.
We also returned nearly $7.4 billion in dividends, benefitting
common shareholders including pensioners and retailinvestors across Canada, and outperformed our global peer
average in 5-year Total Shareholder Return.
Our financial performance backstops our Aa1 credit rating— among the highest of banks in the world — and is atestament to our diversified business model, scale, strong
balance sheet and prudent risk management.
We are well-positioned as we enter 2024, and I’m confident
that RBC can be a pillar of strength and stability for those we
serve through challenging times.
(1) Banks with over $850+ billion in loans(2) Kantar BrandZ

Today, as our society navigatesthis changing world, RBC’s role
as a stabilizing force for our
17+ million clients and thethousands of communities theycall home matters more than ever.

Royal Bank of Canada Annual Report 2023 | 7

The geography of a premium global bank
Our Canadian franchises continue to be the bedrock of
our long-term, premium growth story and our position as a
global competitor.

We have the number one or twomarket share in all key productcategories across Canadian
Banking — supported by thelargest retail network — and we’re
proud of the deep and trusted
client relationships that havehelped us get there.
We also continue to invest in digital experiences and advice
that clients truly value, earning industry recognition for it,
such as ranking highest in customer satisfaction for retailbanking advice by J.D. Power.
Our Canadian Banking business had a strong year for clientacquisition as we welcomed approximately 650,000 net
new clients, up more than 60 per cent year-over-year. In
our Canadian Wealth Management business, we hired 40
per cent more investment advisors than in 2022, resulting
in a record year for recruited assets and an enhanced
experience for our clients.
This year, we strengthened our commitment to our homemarket with the once-in-a-generation deal to acquire HSBC
Canada. This is our largest proposed acquisition ever, andit gives us a chance to take our combined client experienceto the next level by adding a complementary business in themarket we know best. I’m incredibly excited about how thisacquisition will further position RBC as the bank of choicefor newcomers to Canada and internationally-connected
Canadian clients.
This transaction will also be beneficial for Canadians andour country’s economic success. Upon regulatory approval,
more of Canada’s financial sector will be in Canadianhands, more dividends and capital will go to our clients andshareholders in Canada, and as we are one of the largest
taxpayers in Canada, more revenues will stay in our homecountry. As RBC donates a minimum of one per cent of our
pre-tax profits each year in Canada, more money will go to
the communities where we live and work.
In our second home market — the U.S. — we delivered solidorganic growth as our reputation for strength, stability andtrust continues to build with our corporate, institutional andhigh net worth clients.
I’m proud of how we’re executing on our differentiatedstrategy, which is underpinned by a set of strong client
franchises built up over several decades. We have a top-10
investment banking business in the U.S. alongside the 6thlargest wealth manager by assets under administrationin the country.(3) At City National Bank, our client-focusedcommercial franchise continues to be a market leader
in entertainment banking, and we’re looking to keep
reinventing our core client and operational platform toensure long-term, sustainable success.
(3) U.S. wealth advisory firms quarterly earnings releases (10-Q)
8 | Royal Bank of Canada Annual Report 2023

Looking ahead, we have a plan to integrate our U.S.
businesses more deeply and effectively, while alsobroadening and enhancing our product capabilities todeliver a holistic experience for clients. Some of the ways
we’ll drive greater impact in the U.S. include the expansionof our wealth banking platform and a new corporate cash
management offering in Capital Markets.
Finally, in the U.K. and Europe, we aspire for market
presence and scale, as well as greater value creation for ourclients, and this ambition has grown with the addition of RBC
Brewin Dolphin. Following that successful acquisition, we’rea top five wealth manager by assets under administrationin the U.K., Ireland and Channel Islands, and are focusedon continuing to leverage our global capabilities to deliver
leading advice and grow our standing in this important region.

The next chapter of our growth story
Looking ahead, we’re setting our sights on unlocking ournext phase of growth.
With client and investor expectations changing rapidly, it’s
clear to me that the banks that succeed in the future willbe the ones that take advantage of scale to deliver the bestvalue as efficiently as possible.
This is exactly the approach we’re taking as we reposition
the bank for the future — controlling what we can control,
making tough choices, and sharpening our focus to ensure
our people and investments are aligned with our highest
priorities across the bank.
One of those priorities is to double down on our core deposit
franchise — both on the consumer side and the businessside. We’ve spent years building this advantage and willcontinue to prioritize this foundational element of banking
so that we’re well positioned to drive long-term growthbetter than our peers.
But in a rapidly changing world, our size and scale must be
underpinned by our ability to deliver differentiated client
experiences. This is why we’re continually on the lookout
for the next great opportunity to deliver new insights andinnovations that will make banking smarter, simpler andbetter for our clients.

We want to go beyond what people
expect from a bank and offer thebest and most personalized client
experiences possible.
We’ve been doing that by bringing extra value to clients
through partnerships with leading brands like Petro-Canada‡,
Rexall‡, WestJet‡ and METRO Inc., and by expanding ourAvion Rewards™ loyalty program to all Canadians, no matter
where they bank. We were particularly proud to offer Avion®
members an exclusive allocation of tickets to the iconic andrecord-smashing Taylor Swift | The Eras Tour for its 2024
stops in Canada.
As we continue to redefine what a bank can do, we’re focusedon investing in technologies that can deliver data-backed
insights and advice to help clients build confidence andmake better decisions, including through our NOMI® suite ofcapabilities and our AI-based Aiden® trading platform.

RBC has invested heavily in AI for many years and, together
with Borealis AI, we’re one of the leading voices on thistransformative technology across Canada and were ranked in
the top three for AI maturity across the global banking sector.(4)With the emergence of generative AI capabilities, we’re
exploring how to safely and securely tap into the fullpotential of this technology to develop the best products
and services for our clients. We believe that combining
ideas and human creativity with real-time information anddata sets will open up endless possibilities for our bank, oureconomy and our society.

Powering ideas for people and planet
As a trusted partner to clients and communities around theworld, RBC and our people are in a unique position to help
put ideas into action and make progress possible toward amore inclusive, sustainable and prosperous future.
In 2023, we invested $172+ million globally through cash
donations and community investments because we know
our bank is only as strong as the collective wellbeing of thecommunities where we live and work.

Amidst the unique mix of societal
challenges we’re seeing across theworld today, we need to sharpen
our focus on where we can makethe most positive difference.
That’s why this year we established the RBC Purpose
Framework — Powering Ideas for People and Planet,
an initiative that is designed to add structure to our
ESG approach around three clear societal ambitions:accelerating the transition to a greener economy, equipping
people with the skills they need for a thriving future anddriving more equitable prosperity in our communities.
Since my earliest days as CEO, I have been focused on all
three of these areas, but one in particular — the challenge
and opportunity of Canada’s climate transition — has
dominated much of my thinking.
It’s an unquestionable fact that our world is at an urgent
moment in addressing climate change. We all see thecatastrophic impact of environmental crises, especiallythis year, which was one of the worst on record for extreme
weather events that caused devastation and disruption topeople and businesses across the world.
Our continued success as a bank depends on our clients
succeeding commercially over the long term, including
through the transition to a low-carbon economy. The best way
RBC can help is by supporting clients in their decarbonization
efforts and helping them reach their ambitions.
Over the past year, we’ve made progress in a number ofareas — from advising on large renewable energy projects
to supporting clean tech innovators taking solutions to
the market. We’ve also continued to execute on our 2030
financed interim emissions reduction targets for the highest
emitting sectors in our loan portfolio: oil and gas, power
generation and automotive.
(4) Evident AI Index, November 2023
(5) The Client Engagement Approach on Climate is available at
rbc.com/climate

Moving forward, we’ll accelerate our climate strategy bymore clearly and actively sharing what we’re doing to help
get our clients and communities to net-zero faster. This
includes a market-leading framework that formalizes how
we assess our clients’ transition plans called the Client
Engagement Approach on Climate.(5) Starting with our energy
sector clients, this approach will guide how we’ll provide
financing and advice to support those clients that are
implementing transition plans.
We believe that progress on the collective journey to netzero requires the collaboration of many stakeholders acrossCanada, and we’re committed to continued dialogue withclients, investors, Indigenous leaders, researchers, students
and many other engaged groups.
This is happening alongside our work to convene decisionmaking leaders in Canada across industry, government
and NGOs through the RBC Climate Action Institute. We’realready making progress working with clients and leaders in
the agriculture and buildings sectors, and we’ll continue toengage with these stakeholders to help them apply climatesmart solutions across the country.
I am proud of the progress we’ve made to date, and you have
my commitment that we’ll continue our efforts to achieve
our goals.

Thank you
As we enter 2024, I’m more confident and excited than everabout the future of RBC and our important role of helping
clients thrive and communities prosper.
As a pillar of strength in our society and the economies inwhich we operate, we know this is our moment to help bringgreater leadership, stability and confidence to those we
proudly serve.
On behalf of everyone on Team RBC, I want to express myheartfelt thanks to you for continuing to place your trust andsupport in us.
I look forward to continuing to share our progress in the year
ahead.

Dave McKay
President and CEO
Royal Bank of Canada Annual Report 2023 | 9

A message from

Jacynthe Côté
Chair of the Board

RBC has an extraordinary capacity to do good.
Helping its clients thrive and communities prosper is why
RBC exists, and how it excels. Millions of people benefit as aresult. The bank’s motivation to create meaningful value forthose it serves supports its efforts to maintain and extend its
leading market position in areas of strategic importance.

RBC’s solid financial results in
2023 reflect its purpose-driven
performance. It enters the new
fiscal year as one of the highest
valued banks globally.
The Board participates in strategic planning, receives regular
updates from management on business plans and helps
ensure the bank operates within the parameters of its risk
appetite, which helps deliver above-average, low-volatility
growth through economic cycles.
An important focus is talent management, given theenduring advantage of enabling RBC’s 94,000+ employees
to perform at their highest level. The Board helps develop
the next generation of executives by overseeing succession
planning and advising on career pathways that honeessential skills. We also closely monitor the bank’s ongoing
efforts to enhance executive representation of women,
Black, Indigenous and People of Colour. RBC has increased
the representation(1) of women in executive roles from 38
per cent in 2015 to 43 per cent in 2023, and Black, Indigenousand People of Colour executives from 16 per cent to 24 percent over the same period. We continue to drive toward
our ambitious but attainable goals for new executive
appointments for women and Black, Indigenous and Peopleof Colour, which we have set at 50 per cent and 30 per cent,respectively.(2)The Board looks to 2024 with confidence. Notably, pending
regulatory approval, the addition of HSBC Canada clientsand colleagues will help enhance the bank’s value(1) Represents data for our businesses in Canada governed by the
Employment Equity Act. Based on self-identification(2) Refer to page 15 of the 2023 Annual Report for additional information
10 | Royal Bank of Canada Annual Report 2023

proposition, including commercial clients with international
needs and newcomers to Canada. The proposed acquisition
has been a priority focus during each regular Board meetingin 2023 and will continue to be for the foreseeable future.
Still, as Dave notes in his letter, the world is both complex
and dynamic. The Board plays an important oversight role insupporting the bank’s operational and financial resilience. To
better protect the bank’s clients, for instance, its businesses
and functions maintained their focus on identifying themost critical services and where the most severe harm
could occur in a prolonged disruption. Additionally, thebank continued to advance its risk management operating
model, approach and capabilities to withstand stress andunexpected events. Ongoing efforts to build resilience help
sustain the public’s trust in RBC.

The Board recognizes RBC
operates in a wide universe of
stakeholders, many of whom thebank shares common interests
with, such as a healthy andsustainable environment.
Indeed, the bank is committing to support the transition toa net-zero economy, which includes working closely withclients to help them achieve their emissions reduction
objectives for the transition, an area of focus where theBoard believes RBC can make an impactful contribution inadvancing its own climate strategy. More broadly, in 2023,
Directors were presented with the RBC Purpose Framework— Powering Ideas for People and Planet. Its aim is to create
clarity and structure around three societal ambitions where
RBC can have a meaningful impact. Building on existing
environmental, social and governance priorities, RBC wants
to help accelerate the transition to a greener economy,equip people with skills for a thriving future and drive more
equitable prosperity in its communities.
For more than eight years, I have benefitted from theexceptional talent of my Board colleagues, and theirunwavering commitment to do the right things, in the rightFor more than eight years,
I have benefitted from theexceptional talent of my Board
colleagues, and their unwaveringcommitment to do the rightthings, in the right way.

way. The 2023 appointment of Barry Perry as Director
complements our skill set. I would like to express mygratitude to David Denison, who served our Board withgreat distinction. I am also indebted to Kathleen Taylor, who
I succeeded as Chair. Her leadership has helped create amore diverse and dynamic Board. RBC is better for it.
As always, RBC’s continued success will remain linked toserving our clients, understanding the expectations of our
stakeholders and contributing to the conditions that enable

all of us to thrive and prosper. Under Dave McKay and hisleadership team, I am confident the bank’s presence will be
purposeful and success sustainable for years to come.

Jacynthe Côté
Chair of the Board
Royal Bank of Canada Annual Report 2023 | 11

2023 highlights across our balanced scorecard

Clients
At RBC, we are relentlessly focused on delivering exceptional client experiences
through our differentiated advice, products and services. Our investments intechnology and talent underpin how we create long-term value for clients and help
them realize their goals.
Customer Service Award Winneramong the big 5 retail banks –Recognized in all 11 categories ofthe 2023 Ipsos Financial Service
Excellence Awards for the 3rdconsecutive year

Best Retail Banking Advice
in the J.D. Power 2023 Canada
Retail Banking Advice Satisfaction
Study. Clients rated RBC #1 acrossall study factors evaluated,
including quality, clarity, relevancy,
frequency and concern for needs

Market-leading client franchises
 # 1 or #2 market share in all key product categories acrossCanadian Banking
 9
 th largest global investment bank(1), #1 in Canada,#1 Canadian investment bank in the U.S.(2) #1 in market share for High Net Worth/Ultra High Net Worthin Canada L argest retail mutual fund company in Canada based on assets
under management (AUM)(3) One of the largest Canadian bank-owned insuranceorganizations(4) 6th
largest full-service wealth advisory firm in the U.S. and top 5
largest wealth management firm in the U.K. as measured by assets
under administration (AUA)(3)RBC Global Asset Management®
named TopGun Investment Teamof the Year for the 8th time(5)RBC Capital Markets® recognized
as the Best Investment Bankin Canada(8)One of the top 3 Greenwich
Quality Leaders in Canadian
Institutional Investment
Management Service, for the 9thconsecutive year(6)Best Private Bank in Canada(9)and Outstanding Global PrivateBank(10) in North America for 8th
consecutive year

Recognized as the most valuable
Canadian brand for the 5thconsecutive year, with YoY gains
in Purpose, Trust, Inclusion andSustainability measures(7)12 | Royal Bank of Canada Annual Report 2023

RBC Dominion Securities® ranked
highest among Canadianbank-owned investment
brokerage firms for the 17th
consecutive year(11)Leveraged our industry-leading
Canadian mobile app to deliver
value-added client insights.
3.9 million clients have activatedpersonalized plans throughMyAdvisor®
Launched Canada’s new First
Home Savings Account (FHSA)in April 2023 to help Canadianssave tax free for their first home,making it available throughmultiple channels, including RBC
Direct Investing®, RBC InvestEase®
and RBC in-branch advisors

RBCx™ supports 3,500+ tech andinnovation clients and in-house
ventures like Mydoh® (used by
140,000+ Canadians), Ownr®
(trusted by 130,000+ Canadianbusinesses), Houseful™ (formerly
OJO®, supporting millions
of Canadians in their homeownership journey) and Dr. Bill®
(serving 14,000 physicianssince 2020)
Best Treasury and CashManagement Bank in Canada,
Best Trade Finance Provider in
Canada and Best Bank in North
America and Canada for small
and medium-sized businesses(12)RBC is the Official Financial
Services Partner and an Official
Ticket Access Partner of Taylor
Swift | The Eras Tour whenit comes to Canada in 2024.
Through Avion Rewards™,
members had the opportunity toaccess an exclusive allocation oftickets. Avion Rewards expanded
access to all eligible Canadiansregardless of where they bankwith its newest membership tier,
Avion Rewards™ SelectNOMI® Forecast, which provides
clients with a seven-day view
into their future cashflow, wasrecognized for Best Use of AI
for Customer Experience.
960,000+ clients have used
the feature since its launch in
September 2021(13)(1) B ased on global investment banking fees (fiscal 2023),
Dealogic(2) Based on market share (fiscal 2023), Dealogic(3) Refer to the Glossary for definition on page 130(4) On a total revenue basis(5) Brendan Wood International, since 2013
(6) Coalition Greenwich(7) Kantar BrandZ Most Valuable Global Brands(8) Euromoney Awards for Excellence 2023
(9) Global Finance – Best Private Bank Awards 2023
(10) Private Banker International Global Wealth Awards(11) Investment Executive Brokerage Report Card 2023
(12) Global Finance Magazine 2023
(13) The Digital Banker Digital CX Awards 2023

Launched My Money Matters™,a financial wellbeing hub helping
Canadians navigate their personal
relationships with money

Royal Bank of Canada Annual Report 2023 | 13

2023 highlights across our balanced scorecard

Employees
Our strength and success is rooted in the 94,000+ employees worldwide wholive our Purpose and Values. RBC is committed to an inclusive workplace culturethat engages, supports and empowers our employees to help clients thrive andcommunities prosper.

Among Canada’s Top 100 Employers and Best
Workplaces in 2023(1)(2)
One of Canada’s Best Diversity Employers(2) and a
Diversity Champion Talent Award recipient(3)Ongoing learning is a cornerstone of how wesupport our colleagues’ professional development
and career aspirations. Our global workforce
collectively invested 3 million hours in building theirtechnical and business skills(4)Approximately $19+ billion in competitivecompensation and benefits, including increased
employee matching to our defined-contribution
pension plan
Recognized as one of Canada’s Top Employers for
Young People(1)2023 Employee Engagement Survey found employees are highly engaged and feelproud to be part of RBC(11)93%feel they contribute to
RBC’s success

14 | Royal Bank of Canada Annual Report 2023

88%

are proud to be partof RBC87%

are willing to go aboveand beyond

Continued our focus on Diversity & Inclusion
Black, Indigenous and Peopleof Colour (BIPOC) represented:
 61% of hires(5) 45% of promotions(6) 2
 5% of new executive
appointments(7) , relative to ourgoal of 30%

Women represented:
 49% of hires(5)Global employee basecomprised of 18%
young people(8) 54% of promotions(6) 4 3% of new executive
appointments(7) , relative to
our goal of 50%

Welcomed 1,900+
summer students across theglobe, 59% were BIPOC(9)We continued to intentionally enhance programs for historically underrepresented groups(10) to drive more
equitable opportunities for promotion and development.

(1) MediaCorp Canada Inc.
(2) Great Place to Work Institute(3) Diversity Champion Talent Award for companies above 10,000 employees, LinkedIn(4)	Learning hours encompass the cumulative time devoted to various learning initiatives during fiscal 2023(5)	Hires includes new external hires and rehires globally excluding City National Bank and RBC Brewin Dolphin; based on self-identification; excludes summer interns, students and co-ops(6)	Promotions are defined as an upward change in Global Grade. Excludes summer interns, students, co-ops, City National Bank and RBC Brewin Dolphin. Values represent data from ourglobal operations. Based on self-identification(7)	A new executive appointment is the appointment of an internal employee or external hire as a first-time Vice President, Senior Vice President or Executive Vice President. Based on selfidentification. Per RBC’s Diversity & Inclusion Roadmap 2025, our goal is to achieve representation of 30% BIPOC executives and 50% women executives by 2025
(8) Headcount under 30 globally, including City National Bank, BlueBay Asset Management and RBC Brewin Dolphin employees(9) Based on self-identification(10) A group that is historically underrepresented may include those who self-identify as women; Black, Indigenous, and People of Colour (BIPOC); LGBTQ+ and/or persons with disabilities(11) Employee Engagement Survey conducted between April 26-May 10, 2023; participation rate was 74%
Royal Bank of Canada Annual Report 2023 | 15

2023 highlights across our balanced scorecard

Communities
Through our global partnerships, donations and employee initiatives, RBC is committed
to powering ideas that drive positive impact in the communities where we live and work.
Our long-standing commitments to youth, climate, championing inclusion and financial
wellbeing are focused on building strong, resilient and more equitable communities.

Since 2017, RBC Future Launch® has reached6.9+ million Canadian youth and provided $393+
million in support through 900+ partner programs,
helping young people gain access to networking andmentorship, support for mental wellbeing, upskillingand gaining practical work experience

RBC Training Ground hosted events for Indigenous
athletes with Olympic potential in advance of the2023 North American Indigenous Games. Indigenous
athletes, coaches and team staff from Indigenous
Nations across the country gathered in Kjipuktuk(Halifax, NS) to celebrate sport and culture

Through the RBC Emerging Artists program, ourinvestments in arts organizations have exceeded$130 million, supporting 44,000+ artists since 2004

Our Employee Giving Campaign raised $23.9 million,
supporting nearly 12,000 charities in 71 countries
around the world$172+ million given globally through donations andcommunity investments, including nearly $800,000
in humanitarian and relief support efforts in Türkiye,
Syria, Morocco, Libya, and the Middle East, as well
as climate disaster response efforts in Canada(1)16 | Royal Bank of Canada Annual Report 2023

RBC Charity Day for the Kids donated US$5 million
to 63 youth charities around the globe. Since
launching in 2015, this initiative has raised
US$30+ million for 135+ organizations

$5 billion in support of our communities as one of
the largest taxpayers in Canada, and as a taxpayer
in other countries where we operate(2)One million employee volunteer hours tracked in
myCommunity, RBC’s global employee volunteer
platform, since its introduction in 2016

In 2023, RBC Race for the Kids™ raised $10.7+
million for 24 youth-focused charities in 26 cities
around the world. Since it began in New York in 2009,
the RBC Race for the Kids events series has hosted
400,000+ participants and raised $93.5+ million

Launched the RBC Communities Together Fund,enabling RBC employees to help address pressing
needs in their region through team volunteer
events. In 2023, the fund supported 880+ volunteer
projects, engaging 2,800+ employees in 6
countries, mobilizing $1.3+ million in grants andtracking 13,000+ volunteer hours

RBC’s collaboration with McGill University has
275,000+ registrations for the McGill Personal
Financial Essentials course since its launch in2019. Available to all Canadians without cost, theprogram is a part of RBC’s effort to support financial
wellbeing, helping individuals build confidence,
establish financial security and reach their goals(1) Includes donations and community investments made by RBC or RBC Foundation®, employee volunteer grants and gifts in kind, as well as contributions to non-profits andnon-registered charities. Figure includes sponsorships(2) Refer to page 107 of the 2023 Annual Report for additional information

Royal Bank of Canada Annual Report 2023 | 17

2023 highlights across our balanced scorecard

Planet
RBC is working together with our clients to move faster toward net-zero. We’re doing
this by actively engaging clients to understand their transition plans, providing
financial tools and support for their emissions reduction efforts, and convening key
stakeholders to advance ideas that contribute to Canada’s climate progress.

Launched the RBC Climate
Action Institute to bring together
economists, policy analysts andbusiness strategists to help research
and advance ideas that can contributeto Canada’s climate progress

Partnering with EllisDon and MattamyHomes Limited, the RBC Climate
Action Institute launched the Climate
Smart Buildings Alliance to identify
and address key sectoral challenges
and barriers to decarbonization
through targeted projects that
advance industry best practices fornet-zero emissions

The Canadian Alliance for Net-Zero
Agri-food, led by RBC, Loblaw‡,
Maple Leaf‡ Foods, McCain‡ foods,
Nutrien‡ and Boston Consulting
Group, launched two workstreams,
the Carbon Farming Initiative andthe National Biodigester Network
Initiative, to contribute to a circular,
net-zero agri-food system

18 | Royal Bank of Canada Annual Report 2023

Acted as co-lead placement agent for Svante Technologies
Inc.’s capital raise of US$318 million in a Series E financing
round to accelerate the manufacturing of their carbon
capture technology
Launched the RBC Electric Vehicle (EV) Cost Calculator
and established exclusive relationships with two EV
manufacturers – VinFast‡ and Lucid Motors – to contribute to
the expansion of the EV market across Canada
Supported electric truck manufacturer, Vicinity Motor Corp.,with financing together with Export Development Canada(EDC) to help them to scale and support their goal to produce
between 3,000 to 5,000 trucks per year by 2025

RBC Tech for Nature™ supported 150 partners in clean tech,agriculture, energy and nature-based climate solutions
through $21+ million in community investments, an increaseof 72% in 2023. Since 2019, RBC has invested $60+ millionof the $100 million commitment by 2025 to advanceinnovative climate solutions and initiatives that build
resilience through nature
To learn more about RBC’s climate commitments
please visit rbc.com/climate

Ranked 1st among Canadianbanks and 7th globally in
Sustainability-Linked loan
volumes by bookrunner(1)Committed $48 million in 2023
toward venture capital andgrowth equity funds to support
climate innovation, bringing our
total funding to $140+ million
since 2022

Enhanced our solutions for
agriculture with a market-tested,
proof of concept for a digitallyenabled climate advisory tool

Expanded our sustainablefinance product suite forbusinesses, including leveraging
EDC’s Sustainable Financing
Guarantee to increase our lending
support aimed at emissions
reduction activities and othersustainable financeLaunched the new RBC
Foundation Green Skills
Scholarship, focused on
supporting students’ green
skills education in key sectors,
including buildings andconstruction, agriculture and foodproduction, transportation, waste
management and recycling, or
renewable energy(1) Bloomberg as at October 31, 2023
Royal Bank of Canada Annual Report 2023 | 19

2023 highlights across our balanced scorecard

Shareholders
RBC is driven by its vision, values and commitment to delivering
long-term results.

Financialperformance
metrics

Total
shareholder
return(2)Medium-Term Objectives(1)3-Year

5-Year

Diluted EPS growth of 7%+

10%

5%

ROE of 16%+

16.4%

16.0%

Strong capital ratio (CET1)

13.6%

13.1%

Dividend payout ratio of 40%–50%

45%

47%

3-Year

5-Year

RBC

10%

7%

Global peer average

14%

5%

Earnings

Revenue by segment(3)net income (C$ billion)(C$ billion)

$15.8

$14.9

Annualized Dividend
Increase of:

7%

$17.5
WealthManagement

$22.1
P&CB

Five year(4)8%Ten year(4)

2022

2023

$5.7
Insurance(1)	A medium-term (3-5 year) objective is considered to be achieved when the performance goal is met in either
a 3- or 5-year period. These objectives assume a normal business environment and our ability to achieve
them in a period may be adversely affected by the macroeconomic backdrop. Refer to the Glossary fordefinition on page 130(2)	Annualized TSR is calculated based on the TSX common share price appreciation plus reinvested dividend
income. Source: Bloomberg, as at October 31, 2023. Please refer to page 26(3) Excludes Corporate Support(4) Compound Annual Growth Rate

20 | Royal Bank of Canada Annual Report 2023

$11.1
CapitalMarkets

14.2% return on common
equity(5)14.5% robust common equity
tier 1 (CET1) ratio(6)Prudent risk managementwith 21 basis points of provision
for credit losses (PCL) on
impaired loans$5.34 dividends declared
per share; dividend payout ratioof 51%(7)Strong funding profile
Maintained long-term credit
rating of Aa1 by Moody’s‡(8)$7.4 billion of profits returned
to our shareholders throughcommon share dividends

102% ratio of loans to deposits in
Canadian Banking$10.50 diluted earnings per
share (EPS)

Approximately 650,000 net newclients added in 2023, further
strengthening our core deposit
franchise and underscoring ourcommitment to supporting thediverse banking needs of new
Canadians through our advice
and differentiated partnerships(5) Refer to the Glossary for definition on page 131(6) Refer to the Glossary for definition on page 130(7)	Refer to the Glossary for definition on page 130(8)	On November 6, 2023, Moody’s‡ affirmed our long-term debt ratings and assessments, as well as affirmed our short-term debt ratings. Includes senior long-term debt issued prior to
September 23, 2018 and senior long-term debt issued on or after September 23, 2018 which is excluded from the Bail-in regime

Royal Bank of Canada Annual Report 2023 | 21

Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the fiscal
year ended October 31, 2023, compared to the preceding fiscal year. This MD&A should be read in conjunction with our 2023 Annual Consolidated
Financial Statements and related notes and is dated November 29, 2023. All amounts are in Canadian dollars, unless otherwise specified, and are basedon financial statements presented in accordance with International Financial Reporting Standards (IFRS) as issued by the International AccountingStandards Board (IASB), unless otherwise noted.
Additional information about us, including our 2023 Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on
the Canadian Securities Administrators’ website, SEDAR+, at sedarplus.ca and on the EDGAR section of the United States (U.S.) Securities and Exchange
Commission’s (SEC) website at sec.gov.
Information contained in or otherwise accessible through the websites mentioned herein does not form part of this report. All references in this report towebsites are inactive textual references and are for your information only.

Table of contents
Caution regarding forward-looking
statements

22

Overview and outlook
23
Selected financial and other highlights 23
About Royal Bank of Canada
24
Vision and strategic goals
24
Economic, market and regulatory
review and outlook
24
Key corporate events of 2023
25
Defining and measuring successthrough total shareholder returns
26
Financial performance
26
Overview
26
Impact of foreign currency translation 27
Total revenue
27
Provision for credit losses
29
Insurance policyholder benefits, claims
and acquisition expense29
Non-interest expense
30
Income and other taxes
30
Client assets
31
Business segment results
Results by business segment
How we measure and report ourbusiness segments

32
32

Key performance and non-GAAP
measures
Personal & Commercial Banking
Wealth Management
Insurance
Capital Markets
Corporate Support

33
37
42
49
53
57

Quarterly financial information
Fourth quarter performance
Quarterly results and trend analysis

57
57
58

Financial condition
Condensed balance sheets
Off-balance sheet arrangements

60
60
60

Risk management
Top and emerging risks
Overview
Enterprise risk management

63
63
65
66

Transactional/positional risk drivers
Credit risk
Market risk
Liquidity and funding risk
Insurance risk

71
71
81
86
100

32

Operational/regulatory compliancerisk drivers
Operational risk
Regulatory compliance risk

100
100
102

Strategic risk drivers
103
Strategic risk
103
Reputation risk
103
Legal and regulatory environment risk 104
Competitive risk
105
Macroeconomic risk drivers
Systemic risk

105
105

Overview of other risks

106

Capital management

109

Accounting and control matters
Critical accounting policies andestimates
Controls and procedures

118

Related party transactions

122

Supplementary information

122

Glossary

130

Enhanced Disclosure Task Forcerecommendations index

132

118
122

Caution regarding forward-looking statements
From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisionsof the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking
statements in this 2023 Annual Report, in other filings with Canadian regulators or the SEC, in other reports to shareholders, and in other communications. In
addition, our representatives may communicate forward-looking statements orally to analysts, investors, the media and others. Forward-looking statementsin this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, the economic,
market, and regulatory review and outlook for Canadian, U.S., U.K., European and global economies, the regulatory environment in which we operate, theimplementation of IFRS 17 Insurance Contracts, the expected closing of the transaction involving HSBC Bank Canada, including plans for the combination of
our operations with HSBC Bank Canada and the financial, operational and capital impacts of the transaction, the expected closing of the transaction
involving the U.K. branch of RBC Investor Services Trust and the RBC Investor Services business in Jersey, the expected impact of the Federal Deposit
Insurance Corporation’s special assessment, the Strategic priorities and Outlook sections for each of our business segments, the risk environment including
our credit risk, market risk, liquidity and funding risk as well as the effectiveness of our risk monitoring, our climate- and sustainability-related beliefs, targets
and goals (including our net-zero and sustainable finance commitments) and related legal and regulatory developments, and includes statements made by
our President and Chief Executive Officer and other members of management. The forward-looking statements contained in this document represent theviews of management and are presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial
position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision, strategic
goals and priorities and anticipated financial performance, and may not be appropriate for other purposes. Forward-looking statements are typically
identified by words such as “believe”, “expect”, “suggest”, “seek”, “foresee”, “forecast”, “schedule”, “anticipate”, “intend”, “estimate”, “goal”, “commit”,“target”, “objective”, “plan”, “outlook”, “timeline” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “might”, “should”,“could”, “can” or “would” or negative or grammatical variations thereof.
By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general andspecific in nature, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate,that our assumptions may not be correct, that our financial performance, environmental & social or other objectives, vision and strategic goals will not be
achieved, and that our actual results may differ materially from such predictions, forecasts, projections, expectations or conclusions.
We caution readers not to place undue reliance on our forward-looking statements as a number of risk factors could cause our actual results to differ
materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which
can be difficult to predict – include, but are not limited to: credit, market, liquidity and funding, insurance, operational, regulatory compliance (which could lead tous being subject to various legal and regulatory proceedings, the potential outcome of which could include regulatory restrictions, penalties and fines), strategic,
reputation, legal and regulatory environment, competitive, model, systemic risks and other risks discussed in the risk sections of our 2023 Annual Report,
including business and economic conditions in the geographic regions in which we operate, Canadian housing and household indebtedness, information
technology, cyber and third-party risks, geopolitical uncertainty, environmental and social risk (including climate change), digital disruption and innovation,
privacy and data related risks, regulatory changes, culture and conduct risks, the effects of changes in government fiscal, monetary and other policies, tax risk
and transparency, and our ability to anticipate and successfully manage risks arising from all of the foregoing factors. Additional factors that could cause actual
results to differ materially from the expectations in such forward-looking statements can be found in the risk sections of our 2023 Annual Report, as may be
updated by subsequent quarterly reports.
We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on ourforward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties
and potential events, as well as the inherent uncertainty of forward-looking statements. Material economic assumptions underlying the forward-looking
statements contained in this 2023 Annual Report are set out in the Economic, market and regulatory review and outlook section and for each business segment
under the Strategic priorities and Outlook headings, as such sections may be updated by subsequent quarterly reports. Except as required by law, we do notundertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.
Additional information about these and other factors can be found in the risk sections of this 2023 Annual Report, as may be updated by subsequent
quarterly reports.
22

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Overview and outlook
Selected financial and other highlights

Table 1
2023

(Millions of Canadian dollars, except per share, number of and percentage amounts)

Total revenue
Provision for credit losses (PCL)
Insurance policyholder benefits, claims and acquisition expense (PBCAE)
Non-interest expense
Income before income taxes
Net income
Net income – adjusted (1)Segments – net income
Personal & Commercial Banking
Wealth Management (2)Insurance
Capital Markets (2)Corporate Support
Net income
Selected information
Earnings per share (EPS) – basic– diluted
Earnings per share (EPS) – basic adjusted (1)– diluted adjusted (1)Return on common equity (ROE) (3), (4)Return on common equity (ROE) adjusted (1)Average common equity (3)Net interest margin (NIM) – on average earning assets, net (4)PCL on loans as a % of average net loans and acceptances
PCL on performing loans as a % of average net loans and acceptances
PCL on impaired loans as a % of average net loans and acceptances
Gross impaired loans (GIL) as a % of loans and acceptances
Liquidity coverage ratio (LCR) (4), (5)Net stable funding ratio (NSFR) (4), (5)Capital, Leverage and Total loss absorbing capacity (TLAC) ratios (4), (6)Common Equity Tier 1 (CET1) ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
TLAC ratio
TLAC leverage ratio
Selected balance sheet and other information (7)Total assets
Securities, net of applicable allowance
Loans, net of allowance for loan losses
Derivative related assets
Deposits
Common equity
Total risk-weighted assets (RWA) (4), (6)Assets under management (AUM) (4)Assets under administration (AUA) (4), (8), (9)Common share information
Shares outstanding (000s) – average basic– average diluted– end of period
Dividends declared per common share
Dividend yield (4)Dividend payout ratio (4)Common share price (RY on TSX) (10)Market capitalization (TSX) (10)Business information (number of)
Employees (full-time equivalent) (FTE)Bank branches
Automated teller machines (ATMs)
Period average US$ equivalent of C$1.00 (11)Period-end US$ equivalent of C$1.00

$

$

$

$
$

$

56,1292,468
4,022
31,173
18,466
14,866
16,083$

Increase (decrease)

48,985484
1,783
26,60920,10915,807
15,998$8,266 $
2,427
803
4,139
(769)
14,866 $

8,370
3,210
857
3,368
2
15,807

$

10.51
10.50
11.39
11.38
14.2%
15.4%
102,800
1.50%
0.29%
0.08%
0.21%
0.42%
131%
113%

11.08
11.06
11.21
11.19
16.4%
16.6%
94,7001.48%
0.06%(0.04)%
0.10%
0.26%
125%
112%

$

$

$

$

14.5%
15.7%
17.6%
4.3%
31.0%
8.5%

12.6%
13.8%
15.4%
4.4%
26.4%
8.5%

$ 2,004,992
409,730
852,773
142,450
1,231,687
110,347
596,223
1,067,500
4,338,000$ 1,917,219
318,223
819,965
154,439
1,208,814
100,746
609,879
999,700
5,653,600

1,391,020
1,392,529
1,400,511
$
5.34
4.3%
51%
$
110.76
155,121

1,403,654
1,406,034
1,382,911
$
4.96
3.7%
45%
$
126.05
174,316

91,398
1,247
4,341
0.741
0.721

91,427
1,271
4,368
0.774
0.734

$
$

2023 vs. 2022

2022

$
$

$

$

$

$

$
$

$
$

7,144
1,984
2,239
4,564
(1,643)
(941)
85

14.6%
n.m.
n.m.
17.2%
(8.2)%(6.0)%
0.5%

(104)
(783)
(54)
771
(771)
(941)

(1.2)%(24.4)%(6.3)%
22.9%
n.m.
(6.0)%(0.57)(0.56)
0.18
0.19
n.m.
n.m.
8,100
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.

(5.1)%(5.1)%
1.6%
1.7%(220) bps(120) bps
8.6%
2 bps
23 bps
12 bps
11 bps
16 bps600 bps
100 bps

n.m.
n.m.
n.m.
n.m.
n.m.
n.m.

190 bps
190 bps
220 bps(10) bps
460 bps– bps

87,77391,50732,808(11,989)
22,8739,601(13,656)
67,800(1,315,600)

4.6%
28.8%
4.0%
(7.8)%
1.9%
9.5%(2.2)%
6.8%(23.3)%(12,634)(13,505)
17,600
0.38
n.m.
n.m.
(15.29)(19,195)(0.9)%(1.0)%
1.3%
7.7%
60 bps600 bps(12.1)%(11.0)%

(29)
(24)
(27)
(0.033)(0.013)(0.0)%(1.9)%(0.6)%(4.3)%(1.8)%(1)

This is a non-GAAP measure. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section. Amounts have been revised
from those previously presented to conform to our basis of presentation for this non-GAAP measure.
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of
Canada section.
(3)
Average amounts are calculated using methods intended to approximate the average of the daily balances for the period. This includes average common equity used in
the calculation of ROE. For further details, refer to the Key performance and non-GAAP measures section.
(4) See Glossary for composition of this measure.
(5)
The LCR and NSFR are calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI) Liquidity Adequacy Requirements (LAR) guideline.
LCR is the average for the three months ended for each respective period. For further details, refer to the Liquidity and funding risk section.
(6)
Capital ratios and RWA are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline, the Leverage ratio is calculated using OSFI’s Leverage Requirements(LR) guideline, and both the TLAC and TLAC leverage ratios are calculated using OSFI’s TLAC guideline. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in Q2 2023 as part of OSFI’s implementation of the Basel III reforms. For further details, refer to theCapital management section.
(7)
Represents year-end spot balances.
(8)
AUA includes $13 billion and $7 billion (2022 – $15 billion and $6 billion) of securitized residential mortgages and credit card loans, respectively.
(9)Comparative amounts have been revised from those previously presented.
(10) Based on TSX closing market price at period-end.
(11) Average amounts are calculated using month-end spot rates for the period.
n.m. not meaningful(2)Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

23

About Royal Bank of Canada
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 94,000+ employees who leverage their imaginations and insights to bring our vision,values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of thelargest in the world, based on market capitalization, we have a diversified business model with a focus on innovation andproviding exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more
at rbc.com.
Effective the first quarter of 2023, we simplified our reporting structure by eliminating the Investor & Treasury Services segment
and moving its former businesses to existing segments. We moved our Investor Services business to our Wealth Management
segment, and our Treasury Services and Transaction Banking businesses to our Capital Markets segment. Effective the fourth
quarter of 2023, we moved the Investor Services lending business from our Wealth Management segment to our Capital Markets
segment. From a reporting perspective, there were no changes to our Personal & Commercial Banking and Insurance segments.
Comparative results in this MD&A have been revised to conform to our new basis of segment presentation.
Our business segments are described below.

Personal &Commercial Banking

Provides a broad suite of financial products and services to both individual and business clientsin Canada, the Caribbean and the U.S. Our commitment to building and maintaining deep andmeaningful relationships with our clients is underscored by the delivery of exceptional client
experiences, the breadth of our product suite, our depth of expertise, and the features of ourdigital solutions.

WealthManagement

Serves affluent, high net worth (HNW) and ultra-high net worth (UHNW) clients from our offices in
key financial centres mainly in Canada, the U.S., the United Kingdom (U.K.), Europe and Asia. We
offer a comprehensive suite of wealth, investment, trust, banking, credit and other advice-based
solutions. We also provide asset management products to institutional and individual clients
through our distribution channels and third-party distributors. We provide financial institutions,asset managers and asset owners with asset services and investor services.

Insurance

Offers a comprehensive suite of advice and solutions for individual and business clients including
life, health, wealth, property & casualty, travel, group benefits, annuities, and reinsurance.

Capital Markets

Provides expertise in advisory & origination, sales & trading, lending & financing and transaction
banking to corporations, institutional clients, asset managers, private equity firms andgovernments globally. We serve clients from 60 offices in 16 countries across North America, theU.K. & Europe, Australia, Asia and other regions.

Vision and strategic goals
Our business strategies and actions are guided by our vision, “To be among the world’s most trusted and successful financial
institutions.”
Our three strategic goals are:•
In Canada, to be the undisputed leader in financial services;•
In the U.S., to be the preferred partner to institutional, corporate, commercial and HNW clients and their businesses; and•In select global financial centres, to be a leading financial services partner valued for our expertise.
For our progress in 2023 against our business strategies and strategic goals, refer to the Business segment results section.
Economic, market and regulatory review and outlook – data as at November 29, 2023
The predictions and forecasts in this section are based on information and assumptions from sources we consider reliable. If thisinformation or these assumptions are not accurate, actual economic outcomes may differ materially from the outlook presented
in this section.
Economic and market review and outlook
GDP growth is slowing across most advanced economies as headwinds from higher interest rates continue to have a lagged
impact. Unemployment rates remain low across most economies. However, they have begun to marginally increase in Canada
and the United Kingdom (U.K.). The U.S. economy has remained resilient with strong GDP growth and a low unemployment rate.
However, credit conditions continue to tighten, the number of job openings are signaling a decline in hiring demand and theexcess of household savings accumulated during the pandemic has shrunk. U.S. GDP growth is expected to slow late in calendar
2023 with mild recessions expected in the first half of calendar 2024. Canadian GDP is expected to decline over the second half ofcalendar 2023 and grow slowly in early calendar 2024. Inflation is still high but has been slowing in most advanced economies.
Interest rates have increased to levels that most central banks view as sufficient to slow economic growth and reduce
inflationary pressures over time. We expect central banks will not increase policy interest rates further and expect a shift to
reductions in interest rates from the Federal Reserve (Fed) and Bank of Canada (BoC) in the next calendar year. However,interest rates are expected to remain significantly higher than pre-pandemic levels.

24

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

CanadaCanadian GDP is expected to increase 1.0% in calendar 2023 following a 3.4% increase in calendar 2022. Output in early calendar
2023 was supported by strength in consumer spending and an unexpectedly strong rebound in housing market activity in thespring. However, GDP declined slightly in the second calendar quarter of 2023 as consumer spending slowed. An additional
50 basis points of interest rate increases from the BoC over June and July 2023 helped to slow housing markets over the summer.
Per-capita GDP growth and consumer spending have been substantially softer, controlling for historically strong population
growth. Labour market conditions have also more recently shown signs of weakening. The unemployment rate has increased by
0.7% since April and the number of job openings has continued to decline. Inflation growth rates have moderated from peaklevels in calendar 2022 but remain above the top end of the BoC’s 1% to 3% inflation target range. GDP is expected to continue todecline marginally over the second half of calendar 2023 before shifting back to a positive growth rate in calendar 2024. The
unemployment rate is expected to rise above 6% in the first half of calendar 2024. The BoC has increased the overnight rate by
475 basis points since March 2022, and as interest rate increases continue to slow consumer spending, we do not anticipate
additional increases. However, we do not expect a shift to interest rate decreases until the second half of calendar 2024.
U.S.
U.S. GDP is expected to increase 2.4% in calendar 2023 following a 1.9% increase in calendar 2022. U.S. GDP growth has been
exceptionally resilient in calendar 2023. Consumer spending has remained strong despite rising interest rates and employment
has continued to increase at a solid pace. However, the unemployment rate increased to 3.9% in October, wage growth isshowing signs of deceleration, and the number of job openings has declined. The Fed has increased the federal funds rate by
525 basis points since March 2022 and views the current level of interest rates as restrictive enough to slow GDP growth andinflationary pressures over time. We expect the Fed will hold the target range steady before shifting to interest rate decreases
beginning in the second calendar quarter of 2024. We expect U.S. GDP growth softening in the fourth calendar quarter of 2023
followed by a marginal decline in the first half of calendar 2024.
EuropeEuro area GDP is expected to rise by 0.4% in calendar 2023 following a 3.4% increase in calendar 2022. The Euro area economy islosing momentum. GDP declined 0.1% in the third calendar quarter of 2023 and we expect another 0.1% decline in the fourthcalendar quarter of 2023. Labour markets remain exceptionally firm but are expected to soften alongside weaker GDP growth.
Euro area inflation is still high but has begun to slow. The European Central Bank (ECB) is expected to hold the deposit rate
steady through calendar 2024 after a 25 basis point increase to 4% in September 2023. U.K. GDP is projected to rise by 0.4% in
calendar 2023 after a 4.3% increase in calendar 2022. In the U.K., GDP held steady in the third calendar quarter of 2023 as theimpact of the Bank of England’s (BOE) 515 basis points of cumulative rate increases since December 2021 begin to slow consumer
spending. Headline inflation remains elevated; however it is showing signs of moderating. The BOE is expected to hold the Bank
Rate at 5.25% through to the end of calendar 2024.
Financial markets
Bond yields have increased substantially in calendar 2023 as markets demand higher term premiums and expect central banks tohold policy interest rates higher for longer. The spread between longer and shorter duration bond yields, which is a commonlyused recession indicator, increased since the second calendar quarter of 2023 but remains well below zero, as markets continue
to expect deterioration in economic growth. Equity markets have rebounded after declining earlier in the fall and are still above
levels at the end of calendar 2022. Global inflation pressures have shown signs of easing. However, underlying price pressures
are not expected to fully ease until there is a more pronounced slowdown in domestic demand and the economy.
Regulatory environment
We continue to monitor and prepare for regulatory developments and changes in a manner that seeks to ensure compliance withnew requirements, while mitigating adverse business or financial impacts. Such impacts could result from new or amended laws
or regulations and the expectations of those who enforce them. A high level summary of the key regulatory changes that have thepotential to increase or decrease our costs and the complexity of our operations is included in the Legal and regulatoryenvironment risk section of this 2023 Annual Report.
For a discussion on risk factors resulting from these and other developments which may affect our business and financial
results, refer to the risk sections of this 2023 Annual Report. For further details on our framework and activities to manage risks,refer to the risk and Capital management sections of this 2023 Annual Report.
Key corporate events
HSBC Bank Canada
On November 29, 2022, we entered into an agreement to acquire 100% of the common shares of HSBC Bank Canada(HSBC Canada) for an all-cash purchase price of $13.5 billion. HSBC Canada is a premier Canadian personal and commercial bankfocused on globally connected clients. We will also purchase all of the existing preferred shares and subordinated debt of HSBC
Canada held directly or indirectly by HSBC Holdings plc at par value.
The agreement includes a locked box mechanism under which HSBC Canada’s earnings from June 30, 2022 to the closing dateaccrue to RBC and will be reflected in the acquired net assets on closing. Relatedly, we will pay an additional amount that
accrues from August 30, 2023 to the closing date, which is calculated based on the all-cash purchase price for the commonshares of HSBC Canada and the Canadian Overnight Repo Rate Average.
The transaction is expected to close in the first calendar quarter of 2024 and is subject to the satisfaction of customary
closing conditions, including regulatory approvals. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial
Statements.
RBC Investor Services
On July 3, 2023, we completed the previously announced sale of the European asset servicing activities of RBC Investor Services®
and its associated Malaysian centre of excellence (the partial sale of RBC Investor Services operations) to CACEIS, the asset
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

25

servicing banking group of Crédit Agricole S.A. and Banco Santander, S.A. As a result of the transaction, we recorded a pre-tax
gain on disposal of $69 million in Non-Interest income within the Wealth Management segment ($77 million after-tax).
The completion of the sale of the business of the U.K. branch of RBC Investor Services Trust and the RBC Investor Services
business in Jersey remains subject to customary closing conditions, including regulatory approvals. For further details, refer toNote 6 of our 2023 Annual Consolidated Financial Statements.
Defining and measuring success through total shareholder returns
Our focus is to maximize total shareholder returns (TSR) through the achievement of top half performance compared to ourglobal peer group over the medium-term (3-5 years), which we believe reflects a longer-term view of strong and consistentfinancial performance.
Maximizing TSR is aligned with our three strategic goals discussed earlier and we believe represents the most appropriate
measure of shareholder value creation. TSR is a concept used to compare the performance of our common shares over a periodof time, reflecting share price appreciation and dividends paid to common shareholders. The absolute size of TSR will varydepending on market conditions, and the bank’s position reflects the market’s perception of our overall performance relative to
our peers over a period of time.
Financial performance objectives are used to measure our performance against our medium-term TSR objectives and areused as goals as we execute against our strategic priorities. We review and revise these financial performance objectives as
economic, market and regulatory environments change.
The following table provides a summary of our 3-year and 5-year performance against our medium-term financial
performance objectives:
Financial performance compared to our medium-term objectives

Table 2Medium-term objectives (1)Diluted EPS growth of 7% +ROE of 16% +Strong capital ratio (CET1) (3)Dividend payout ratio 40% – 50%
(1)
(2)
(3)

3-year (2)5-year (2)

10%
16.4%
13.6%
45%

5%
16.0%
13.1%
47%

A medium-term (3-5 year) objective is considered to be achieved when the performance goal is met in either a 3- or 5-year period. These objectives assume a normal
business environment and our ability to achieve them in a period may be adversely affected by the macroeconomic backdrop.
Diluted EPS growth is calculated using a Compound Annual Growth Rate (CAGR). ROE, CET1 and dividend payout ratio are calculated using an average.
The CET1 ratio is calculated using OSFI’s CAR guideline. For further details on the CET1 ratio, refer to the Capital management section.

Our 3-year and 5-year medium-term financial performance objectives will remain unchanged in fiscal 2024.
We compare our TSR to that of a global peer group approved by our Board of Directors (the Board). The global peer groupconsists of the following 9 financial institutions:•
Canadian financial institutions: Bank of Montreal, Canadian Imperial Bank of Commerce, Manulife Financial Corporation,
National Bank of Canada, The Bank of Nova Scotia, and Toronto-Dominion Bank.
•
U.S. banks: JPMorgan Chase & Co. and Wells Fargo & Company.
•
International banks: Westpac Banking Corporation.
Medium-term objectives – 3- and 5-year TSR vs. peer group average

Table 3

Royal Bank of Canada

3-year TSR (1)5-year TSR (1)10%
Bottom half

7%
Top half

14%5%Peer group average (excluding RBC)
(1)

The 3- and 5-year annualized TSR are calculated based on our common share price appreciation as per the TSX closing market price plus reinvested dividends for theperiod October 31, 2020 to October 31, 2023 and October 31, 2018 to October 31, 2023.

Common share and dividend information

Table 4

For the year ended October 31

Common share price (RY on TSX) – close, end of period
Dividends paid per share
Increase (decrease) in share priceTotal shareholder return

$

2023

2022

2021

110.76
5.34(12.1)%(8.3)%$ 126.05
4.96(2.2)%
1.6%$ 128.82
4.32
38.3%
43.8%

2020

2019

93.16
4.26
(12.3)%(8.4)%$ 106.24
4.00
10.8%
15.2%

$

Financial performance
Overview
2023 vs. 2022
Net income of $14,866 million was down $941 million or 6% from last year. Diluted EPS of $10.50 was down $0.56 and ROE of 14.2%
was down 220 bps. Our CET1 ratio was 14.5%, up 190 bps from last year.
Adjusted net income of $16,083 million was up $85 million or 1%. Adjusted diluted EPS of $11.38 was up $0.19 and adjusted ROEof 15.4% was down 120 bps.
26

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Our earnings were down from last year, primarily driven by the impact of the CRD and other tax related adjustments in thecurrent year, which is reported in Corporate Support. Our results also reflect lower earnings in Wealth Management, Personal &Commercial Banking and Insurance. This was partially offset by higher results in Capital Markets. Results in the current year
reflect higher PCL, mainly driven by higher provisions on impaired loans and provisions taken on performing loans as compared
to releases of provisions on performing loans last year.
For further details on our business segment results and CET1 ratio, refer to the Business segment results and Capitalmanagement sections, respectively.
Adjusted results
Adjusted results exclude specified items, consisting of impairment losses on our interest in an associated company, certain
deferred tax adjustments, the CRD and other tax related adjustments and HSBC Canada transaction and integration costs (net oftax), as well as the after-tax impact of amortization of acquisition-related intangibles. Adjusted results are non-GAAP measures.
For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Impact of foreign currency translation
The following table reflects the estimated impact of foreign currency translation on key income statement items:
Table 52023 vs. 2022

(Millions of Canadian dollars, except per share amounts)

Increase (decrease):
Total revenue
PCL
Non-interest expense
Income taxes
Net income
Impact on EPS
Basic
Diluted

$

936
29
607
9
291

$

0.21
0.21

The relevant average exchange rates that impact our business are shown in the following table:
Table 6
(Average foreign currency equivalent of C$1.00) (1)U.S. dollar
British pound
Euro
(1)

2023

2022

0.741
0.599
0.689

0.774
0.618
0.727

Average amounts are calculated using month-end spot rates for the period.

Total revenue
Table 72023

(Millions of Canadian dollars, except percentage amounts)

Interest and dividend income
Interest expense

2022

$

86,991
61,862$

40,771
18,054$25,1291.50%$

22,717
1.48%$

5,675 $
2,392
8,344
4,063
1,463
2,099
2,005
1,292
1,240
1,489
193
(219)
964

3,510
926
7,610
4,289
1,481
1,976
2,058
1,038
1,203
1,512
43
110
512

Non-interest income$

31,000$26,268

Total revenue$

56,129$48,985

Net interest income
NIM
Insurance premiums, investment and fee income
Trading revenue
Investment management and custodial fees
Mutual fund revenue
Securities brokerage commissions
Service charges
Underwriting and other advisory fees
Foreign exchange revenue, other than trading
Card service revenue
Credit fees
Net gains on investment securities
Income (loss) from joint ventures and associates
Other

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

27

2023 vs. 2022
Total revenue increased $7,144 million or 15% from last year, mainly due to higher net interest income, Insurance premiums,
investment and fee income (insurance revenue), and trading revenue. Higher investment management and custodial fees, otherrevenue and foreign exchange revenue, other than trading also contributed to the increase. These factors were partially offset byincome (loss) from joint ventures and associates and lower mutual fund revenue. The impact of foreign exchange translation
increased revenue by $936 million.
Net interest income increased $2,412 million or 11%, largely due to higher spreads in Canadian Banking and WealthManagement and average volume growth in Canadian Banking. These factors were partially offset by lower revenue from
non-trading derivatives, which was offset in Other revenue, and lower fixed income trading revenue, both in Capital Markets.
NIM was up 2 bps, mainly due to the impact of the higher interest rate environment in Canadian Banking and WealthManagement, partially offset by an unfavourable shift in deposit mix within Canadian Banking and higher funding costs in CapitalMarkets.
Insurance revenue increased $2,165 million or 62%, primarily reflecting the change in fair value of investments backing
policyholder liabilities, higher group annuity sales, and business growth across most products, all of which are largely offset in
PBCAE.
Investment management and custodial fees increased $734 million or 10%, mainly reflecting the inclusion of RBC Brewin
Dolphin.
Trading revenue increased $1,466 million, mainly due to higher fixed income trading revenue across all regions. The prioryear also included the impact of loan underwriting markdowns.
Foreign exchange revenue, other than trading increased $254 million or 24%, primarily driven by foreign currency translation
gains associated with certain foreign currency denominated funding, which was offset by the impact of economic hedges in Other
revenue.
Mutual fund revenue decreased $226 million or 5%, largely due to lower average fee-based client assets, largely driven byunfavourable market conditions in Wealth Management, and lower average mutual fund balances driving lower distribution feesin Canadian Banking.
Income (loss) from joint ventures and associates decreased $329 million, mainly attributable to impairment losses on ourinterest in an associated company in Wealth Management.
Other revenue increased $452 million or 88%, mainly attributable to gains from our non-trading portfolios, which were offset
in Net interest income, and changes in the fair value of the hedges related to our U.S. share-based compensation plans, which
was largely offset in Non-interest expense. Higher revenue from sweep deposits and a favourable impact from tax-related items
also contributed to the increase. These factors were partially offset by the impact of economic hedges.
Additional trading information
Table 8

$

2023
1,510
2,392

$

2022
2,024
926

$

3,902

$

2,950

$

2,528
604
770

$

1,147
951
852

$

3,902

$

2,950

(Millions of Canadian dollars)

Net interest income (1)Non-interest income
Total trading revenue
Total trading revenue by productInterest rate and credit
Equities
Foreign exchange and commodities
Total trading revenue(1)

Reflects net interest income arising from trading-related positions, including assets and liabilities that are classified ordesignated at fair value through profit or loss (FVTPL).

2023 vs. 2022
Total trading revenue of $3,902 million, which is comprised of trading-related revenue recorded in Net interest income andNon-interest income, increased $952 million or 32% from last year, mainly due to higher fixed income trading revenue across all
regions. The prior year also included the impact of loan underwriting markdowns.

28

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Provision for credit losses (1)Table 9For the year ended
October 31(Millions of Canadian dollars, except percentage amounts)

Personal & Commercial Banking
Wealth Management (2)Capital Markets (2)Corporate Support and other (3)$PCL on performing loans

2023
370
153
137
–

October 31$

660

Personal & Commercial Banking
Wealth Management (2)Capital Markets (2)Corporate Support and other$

PCL on impaired loans (3)PCL – Loans
PCL – Other (4)

1,225
175
436
–

2022
(281)
20
(20)
–
(281)

$

755
13
9
1

1,836

778

2,496
(28)

497
(13)

Total PCL

$

2,468

$

484

PCL on loans is comprised of:RetailWholesale

$

295
365

$

(31)
(250)

PCL on performing loans
RetailWholesale
PCL on impaired loans

660

(281)

1,051
785

648
130

1,836

PCL – Loans

$

2,496

778
$

497

PCL on loans as a % of average net loans and acceptances

0.29%

0.06%

PCL on impaired loans as a % of average net loans andacceptances

0.21%

0.10%

(1)
(2)
(3)
(4)

Information on loans represents loans, acceptance and commitments.
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.
Includes PCL recorded in Corporate Support and Insurance.
PCL – Other includes amounts related to debt securities measured at fair value through other comprehensive income(FVOCI) and amortized cost, accounts receivable, and financial and purchased guarantees.

2023 vs. 2022
Total PCL increased $1,984 million from last year, primarily reflecting higher provisions in Personal & Commercial Banking andCapital Markets. The PCL on loans ratio increased 23 bps.
PCL on performing loans was $660 million compared to $(281) million last year, mainly reflecting provisions taken in thecurrent year in Personal & Commercial Banking attributable to unfavourable changes in credit quality and portfolio growth.
Higher provisions in Capital Markets driven by unfavourable changes to our macroeconomic forecast and credit quality outlook
also contributed to the increase.
PCL on impaired loans increased $1,058 million, primarily due to higher provisions in our Canadian Banking portfolios andCapital Markets across most sectors.
Insurance policyholder benefits, claims and acquisition expense (PBCAE)
2023 vs. 2022
PBCAE of $4,022 million increased $2,239 million from last year, primarily reflecting the change in fair value of investmentsbacking policyholder liabilities, higher group annuity sales and business growth across most products, all of which are largely
offset in revenue. These factors were partially offset by improved claims experience.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

29

Non-interest expense
Table 102023

(Millions of Canadian dollars, except percentage amounts)

Salaries
Variable compensation
Benefits and retention compensation
Share-based compensation$

Human resources
Equipment
Occupancy
Communications
Professional fees
Amortization of other intangibles
Other
Non-interest expense
Efficiency ratio (1)Adjusted efficiency ratio (2), (3)
(1)
(2)
(3)

8,597
7,607
2,139
628

2022
$

18,971
2,381
1,634
1,271
2,223
1,487
3,206
$

31,173
55.5%
58.2%

7,251
7,127
2,015
135
16,528
2,099
1,554
1,082
1,511
1,369
2,466

$

26,60954.3%
55.8%

Efficiency ratio is calculated as Non-interest expense divided by Total revenue.
This is a non-GAAP ratio. For further details, refer to the Key performance and non-GAAP measures section.
Effective Q2 2023, we revised the composition of this non-GAAP ratio. Comparative adjusted amounts have been revised
to conform with this presentation.

2023 vs. 2022
Non-interest expense increased $4,564 million or 17% from last year, mainly due to higher staff costs, the inclusion of RBC Brewin
Dolphin and related costs, the impact of foreign exchange translation and higher professional fees. The change in the fair valueof our U.S. share-based compensation plans, which was largely offset in Other revenue, as well as transaction and integration
costs relating to the planned acquisition of HSBC Canada also contributed to the increase.
Our efficiency ratio of 55.5% increased 120 bps from last year. Our adjusted efficiency ratio of 58.2% increased 240 bps from
55.8% last year.
Adjusted efficiency ratio is a non-GAAP ratio. For further details, including a reconciliation, refer to the Key performance andnon-GAAP measures section.
Income and other taxes
Table 112023

(Millions of Canadian dollars, except percentage amounts)

Income taxes$

Other taxes
Value added and sales taxes
Payroll taxes
Capital taxes
Property taxes
Insurance premium taxes
Business taxes

3,600

2022
$

4,302

597
990
55
144
35
82

508
871
90
129
31
72

1,903

1,701

Total income and other taxes

$

5,503

$

6,003

Income before income taxes$

18,466$

20,109Effective income tax rate

19.5%

21.4%

Effective total tax rate (1)

27.0%

27.5%

Adjusted results (2)Adjusted income taxes
Adjusted income before income taxes
Adjusted effective income tax rate
(1)
(2)

$

3,346
19,429
17.2%

$

4,367
20,365
21.4%

Total income and other taxes as a percentage of income before income taxes and other taxes.
These are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP
measures section.

2023 vs. 2022
Income tax expense decreased $702 million or 16% from last year, primarily due to the impact of changes in earnings mix, certain
deferred tax adjustments and lower income before income taxes. These factors were partially offset by the impact of the CRD andother tax related adjustments and the 1.5% increase in the Canadian corporate tax rate in the current year. Adjusted income tax
expense decreased $1,021 million or 23%.

30

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

The effective income tax rate of 19.5% decreased 190 bps, primarily due to the impact of changes in earnings mix and certain
deferred tax adjustments. These factors were partially offset by the impact of the CRD and other tax related adjustments noted
above and the 1.5% increase in the Canadian corporate tax rate in the current year. Adjusted effective income tax rate of 17.2%
decreased 420 bps.
Other taxes increased $202 million or 12% from last year, primarily due to higher payroll taxes driven by higher staff-related
costs and higher value added and sales taxes commensurate with increased purchase activity.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Client assets
Assets under administration
AUA are assets administered by us which are beneficially owned by our clients. We provide services that are administrative innature, including safekeeping, collecting investment income, settling purchase and sale transactions, and record keeping.
Underlying investment strategies within AUA are determined by our clients and generally do not impact the administrative feesthat we receive. Administrative fees can be impacted by factors such as asset valuation level changes from market movements,
types of services administered, transaction volumes, geography and client relationship pricing based on volumes or multiple
services.
Our Wealth Management business is the primary business segment that has AUA with approximately 92% of total AUA,
mainly in the Investor Services line of business with approximately 57% of AUA, as at October 31, 2023. The Personal &Commercial Banking business has approximately 8% of total AUA.
2023 vs. 2022
AUA decreased $1,316 billion or 23% from last year, mainly due to the partial sale of RBC Investor Services operations, partially
offset by the favourable impact of market appreciation.
The following table summarizes AUA by geography and asset class:
AUA by geographic mix and asset class

Table 122023

(Millions of Canadian dollars)

Canada (1)Money market
Fixed income
EquityMulti-asset and other$Total Canada

34,900705,800
770,500
1,045,800

2022$

43,200735,800
734,000
1,006,300

2,557,000

2,519,300

U.S. (1)
Money market
Fixed income
EquityMulti-asset and other

31,600131,600
271,600
326,500

40,700116,000
246,300
304,300

Total U.S.

761,300

707,300

Other International (1)Money market
Fixed income (2)EquityMulti-asset and other (2)19,100130,000
404,100
466,500

38,200255,200
636,600
1,497,000

1,019,700$ 4,338,000

2,427,000$ 5,653,600

Total International (2)Total AUA (2)(1)(2)

Geographic information is based on the location from where our clients are serviced.
Comparative amounts have been revised from those previously presented.

Assets under management
AUM are assets managed by us which are beneficially owned by our clients. Management fees are paid by the investment funds
and other clients for the investment capabilities of an investment manager and can also cover administrative services.
Management fees may be calculated daily, monthly or quarterly as a percentage of the AUM, depending on the distribution
channel, product and investment strategies. In general, equity strategies carry a higher fee rate than fixed income or money
market strategies. Fees are also impacted by asset mix and relationship pricing for clients using multiple services. Higher risk
assets generally produce higher fees, while clients using multiple services can take advantage of synergies which reduce the fees
they are charged. Certain funds may have performance fee arrangements where fees are recorded when certain benchmarks or
performance targets are achieved. These factors could lead to differences in fees earned by product and therefore net return byasset class may vary despite similar average AUM. Our Wealth Management segment is the primary business segment that has
AUM with approximately 99% of total AUM as at October 31, 2023.
2023 vs. 2022
AUM increased $68 billion or 7% from last year, mainly due to the impact of market appreciation and net sales.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

31

The following table presents the change in AUM for the year ended October 31, 2023:
Client assets – AUM

Table 132023

(Millions of Canadian dollars)

Money market

AUM, beginning balanceInstitutional inflows
Institutional outflows
Personal flows, net$

Fixed income

37,800 $160,200(159,400)800

Equity2022
Multi-asset
and other

Total

197,800 $ 129,900 $ 634,200 $
52,5007,000
19,400(42,300)(10,000)(14,300)
2,600(2,100)
9,100

Total

999,700 $ 1,008,700
239,100
175,600(226,000)(180,000)
10,40021,400Total net flows
Market impact
Acquisition/dispositions
Foreign exchange

1,600
800
–
400

12,800
3,200
–
3,500

(5,100)
4,600
–
800

14,20019,300–11,70023,50027,900–16,40017,000(117,400)
58,50032,900Total market, acquisition/dispositions
and foreign exchange impact

1,200

6,700

5,400

31,00044,300(26,000)

217,300$ 130,200$ 679,400$ 1,067,500

AUM, balance at end of year$

40,600$$999,700

Business segment results
Results by business segments
Table 142023
(Millions of Canadian dollars,
except percentage amounts)

Net interest income
Non-interest income

Personal &Commercial
Banking

WealthManagement

Insurance$$$

16,0746,046

4,495
13,049

–
5,675

2022
CapitalMarkets (1)

$

3,379
7,672

Corporate
Support (1)

$

Total

1,181 $
(1,442)25,12931,000Total$

22,71726,268

Total revenue
PCL
PBCAE
Non-interest expense

22,120
1,579
–
9,215

17,544328–
14,128

5,675
–
4,022
653

11,051
561
–
6,509

(261)
–
–
668

56,1292,468
4,022
31,17348,985484
1,783
26,609

Income before income taxes
Income taxes

11,326
3,060

3,088
661

1,000
197

3,981
(158)

(929)
(160)

18,466
3,600

20,1094,302

Net income$

Average assets

8,266

$

27.8%

ROE (2)$ 616,600

$

2,427

(769) $

14,866

9.9%

$

37.3%

803

$

14.6%

4,139

$

n.m.

14.2%

$

15,80716.4%

193,100$ 23,500$ 1,107,100$ 62,600$ 2,002,900$ 1,886,900(1)

Net interest income, Non-interest income, Total revenue, Income before income taxes, and Income taxes are presented in Capital Markets on a taxable equivalent basis(teb). The teb adjustment is eliminated in the Corporate Support segment. For a further discussion, refer to the How we measure and report our business segments
section.
(2)
For further details, refer to the Key performance and non-GAAP measures section.
n.m. not meaningful

How we measure and report our business segments
Our management reporting framework is intended to measure the performance of each business segment as if it were a standalone business and reflects the way that the business segment is managed. This approach is intended to ensure that ourbusiness segments’ results include all applicable revenue and expenses associated with the conduct of their business anddepicts how management views those results.
Key methodologies
The following outlines the key methodologies and assumptions used in our management reporting framework. These are
periodically reviewed by management to ensure they remain valid. Effective the first quarter of 2023, we simplified our reporting
structure by eliminating the Investor & Treasury Services segment and moving its former businesses to existing segments.
Effective the fourth quarter of 2023, we moved the Investor Services lending business from our Wealth Management segment to
our Capital Markets segment. For further details, refer to the About Royal Bank of Canada section.

Expense and tax allocation
To ensure that our business segments’ results include expenses associated with the conduct of their business, we allocate costs
incurred or services provided by Technology & Operations and Functions, which are directly undertaken or provided on thebusiness segments’ behalf. For other costs not directly attributable to our business segments, including overhead costs andother indirect expenses, we use our management reporting framework for allocating these costs to each business segment in amanner that is intended to reflect the underlying benefits.
32

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Capital attribution
Our management reporting framework also determines the attribution of capital to our business segments in a manner that is
intended to consistently measure and align economic costs with the underlying benefits and risks associated with the activitiesof each business segment. The amount of capital assigned to each business segment is referred to as attributed capital.
Unattributed capital and associated amounts are reported in Corporate Support. For further information, refer to the Capitalmanagement section.
Funds transfer pricing
Funds transfer pricing refers to the pricing of intra-company borrowing or lending for management reporting purposes. We
employ a funds transfer pricing process to enable risk-adjusted management reporting of segment results. This process
determines the costs and revenue for intra-company borrowing and lending of funds after taking into consideration our interest
rate risk and liquidity risk management objectives, as well as applicable regulatory requirements.
Provisions for credit losses
PCL is recorded to recognize expected credit losses on all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. For details on our accounting
policy on Allowance for credit losses (ACL), refer to Note 2 of our 2023 Annual Consolidated Financial Statements.
PCL is included in the results of each business segment to fully reflect the appropriate expenses related to the conduct ofeach business segment.
In addition to the key methodologies described above, the following components of our management reporting framework also
impact how our business segments are managed and reported:•
Wealth Management results include disclosure in U.S. dollars, primarily for U.S. Wealth Management (including City
National) as we review and manage the results of this business largely in this currency.
•
Capital Markets results are reported on a teb basis, which grosses up total revenue from certain tax-advantaged sources(Canadian taxable corporate dividends and the U.S. tax credit investment business) to their effective taxable equivalentvalue with a corresponding offset recorded in the provision for income taxes. We record the elimination of the teb
adjustments in Corporate Support. We believe these adjustments are useful and reflect how Capital Markets manages its
business, since it enhances the comparability of revenue and related ratios across taxable revenue and our principal
tax-advantaged sources of revenue. The use of teb adjustments and measures may not be comparable to similar GAAP
measures or similarly adjusted amounts disclosed by other financial institutions.
•
Corporate Support results include all enterprise level activities that are undertaken for the benefit of the organization thatare not allocated to our four business segments, such as certain treasury and liquidity management activities, including
amounts associated with unattributed capital, and consolidation adjustments, including the elimination of the teb gross-up
amounts. In addition, we record gains (losses) on economic hedges of our U.S. Wealth Management (including City National)
share-based compensation plans, which are reflected in revenue, and related variability in share-based compensation
expense driven by changes in the fair value of liabilities relating to these plans in Corporate Support as we believe thispresentation more closely aligns with how we view business performance and manage the underlying risks.
Key performance and non-GAAP measures

Performance measures
We measure and evaluate the performance of our consolidated operations and each business segment using a number offinancial metrics, such as net income and ROE. Certain financial metrics, including ROE, do not have a standardized meaning
under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed by otherfinancial institutions.
Return on common equity
We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in ourbusiness. Management views the business segment ROE measure as a useful measure for supporting investment and resource
allocation decisions because it adjusts for certain items that may affect comparability between business segments and certain
competitors.
Our consolidated ROE calculation is based on net income available to common shareholders divided by total averagecommon equity for the period. Business segment ROE calculations are based on net income available to common shareholders
divided by average attributed capital for the period. For each segment, average attributed capital includes the capital required tounderpin various risks as described in the Capital management section and amounts invested in goodwill and intangibles.
The attribution of capital involves the use of assumptions, judgments and methodologies that are regularly reviewed andrevised by management as deemed necessary. Changes to such assumptions, judgments and methodologies can have a material
effect on the business segment ROE information that we report. Other companies that disclose information on similar
attributions and related return measures may use different assumptions, judgments and methodologies.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

33

The following table provides a summary of our ROE calculations:
Calculation of ROE

Table 15
2023

(Millions of Canadian dollars,
except percentage amounts)

Net income available to commonshareholders
Total average common equity (1), (2)ROE (3)
(1)
(2)
(3)
n.m.

Personal &Commercial
Banking

WealthManagement

Insurance

$

$

$

8,192
29,50027.8%

2,372
24,050
9.9%

798
2,150
37.3%

2022

$

CapitalMarkets

Corporate
Support

4,077
27,850

$

14.6%

Total

(816) $ 14,623
19,250102,800
n.m.

14.2%

Total
$

15,547
94,70016.4%

Total average common equity represents rounded figures.
The amounts for the segments are referred to as attributed capital.
ROE is based on actual balances of average common equity before rounding.
not meaningful

Non-GAAP measures
We believe that certain non-GAAP measures (including non-GAAP ratios) are more reflective of our ongoing operating results andprovide readers with a better understanding of management’s perspective on our performance. These measures enhance thecomparability of our financial performance for the year ended October 31, 2023 with the results from last year. Non-GAAP
measures do not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by otherfinancial institutions.
The following discussion describes the non-GAAP measures we use in evaluating our operating results.

Adjusted results
We believe that providing adjusted results and certain measures excluding the impact of the specified items discussed below andamortization of acquisition-related intangibles enhance comparability with prior periods and enables readers to better assess
trends in the underlying businesses. Specified items impacting our results for the current year are:•Impairment losses: reflects impairment losses on our interest in an associated company in the fourth quarter of 2023. For
further details, refer to Note 12 of our 2023 Annual Consolidated Financial Statements.
•
Certain deferred tax adjustments: reflects the recognition of deferred tax assets relating to realized losses in City National
associated with the intercompany sale of certain debt securities in the fourth quarter of 2023•
CRD and other tax related adjustments: reflects the impact of the CRD and the 1.5% increase in the Canadian corporate tax
rate applicable to fiscal 2022, net of deferred tax adjustments, which were announced in the Government of Canada’s 2022
budget and enacted in the first quarter of 2023•
Transaction and integration costs relating to our planned acquisition of HSBC Canada
Adjusted efficiency ratio
The adjusted efficiency ratio is a non-GAAP ratio and is calculated based on adjusted Non-interest expenses excluding specified
items and amortization of acquisition-related intangibles divided by total revenue excluding specified items and net of PBCAE,
both of which are non-GAAP measures. We believe that the adjusted efficiency ratio is a useful measure as the change in fairvalue of investments backing policyholder liabilities can lead to volatility in revenue, which is largely offset within PBCAE, that
could obscure trends in underlying business performance and reduce comparability with prior periods.

34

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Consolidated results, reported and adjusted
The following table provides a reconciliation of adjusted results to our reported results and illustrates the calculation of adjusted
measures presented. The adjusted results and measures presented below are non-GAAP measures or ratios.
Table 16
2023

(Millions of Canadian dollars, except per share, number of and percentage amounts)

Total revenue
PCL
Non-interest expense
Income before income taxes
Income taxes
Net income
Net income available to common shareholders$$$

56,1292,468
31,173
18,4663,600
14,866
14,623

Average number of common shares (thousands)
Basic earnings per share (in dollars)$

Average number of diluted common shares (thousands)
Diluted earnings per share (in dollars)$

2022 (1)$$$48,985484
26,60920,1094,302
15,807
15,547

1,391,020
10.51$

1,403,654
11.08

1,392,529
10.50$

1,406,034
11.06

14.2%
19.5%

ROE (2)
Effective income tax rate

16.4%
21.4%

Total adjusting items impacting net income (before-tax)
Specified item: HSBC Canada transaction and integration costs (3)Specified item: Impairment losses on our interest in an associated company (4)Amortization of acquisition-related intangibles (5)

$

963
380
242
341

$

256
–
–
256

Total income taxes for adjusting items impacting net income
Specified item: CRD and other tax related adjustments (3), (6)Specified item: Certain deferred tax adjustments (3)Specified item: Impairment losses on our interest in an associated company (4)Specified item: HSBC Canada transaction and integration costs (3)Amortization of acquisition-related intangibles (5)$(254) $
(1,050)
578
65
78
75

65
–
–
–
–
65

Adjusted results (7)Income before income taxes – adjusted
Income taxes – adjusted
Net income – adjusted
Net income available to common shareholders – adjusted$$

19,4293,346
16,083
15,840$$20,365
4,367
15,99815,738Average number of common shares (thousands)
Basic earnings per share (in dollars) – adjusted$

1,391,020
11.39$

1,403,654
11.21

Average number of diluted common shares (thousands)
Diluted earnings per share (in dollars) – adjusted$

1,392,529
11.38$

1,406,034
11.19

ROE – adjusted
Adjusted effective income tax rate

15.4%
17.2%

16.6%
21.4%

Adjusted efficiency ratio (8)Total revenue
Less: PBCAE
Add specified item: Impairment losses on our interest in an associated company (before-tax) (4)Total revenue – adjusted
Non-interest expense
Less specified item: HSBC Canada transaction and integration costs (before-tax) (3)Less: Amortization of acquisition-related intangibles (before-tax) (5)Non-interest expense – adjusted
Efficiency ratio
Efficiency ratio – adjusted
(1)
(2)
(3)
(4)
(5)
(6)
(7)

(8)

$
$
$
$

56,1294,022
242
52,34931,173380
341
30,452
55.5%
58.2%

$
$
$
$

48,985
1,783–
47,202
26,609–256
26,35354.3%
55.8%

There were no specified items for the year ended October 31, 2022.
ROE is based on actual balances of average common equity before rounding.
These amounts have been recognized in Corporate Support.
During the fourth quarter of 2023, we recognized impairment losses on our interest in an associated company. This amount has been recognized in Wealth Management.
Represents the impact of amortization of acquisition-related intangibles (excluding amortization of software), and any goodwill impairment.
The impact of the CRD and other tax related adjustments does not include $0.2 billion recognized in other comprehensive income.
Effective the second quarter of 2023, we included HSBC Canada transaction and integration costs and amortization of acquisition-related intangibles as adjusting items
for non-GAAP measures and non-GAAP ratios. Therefore, comparative adjusted results have been revised from those previously presented to conform to our basis ofpresentation for this non-GAAP measure.
Effective the second quarter of 2023, we revised the composition of this non-GAAP ratio, which is calculated based on Non-interest expense adjusted divided by total
revenue adjusted. Therefore, comparative adjusted results have been revised from those previously presented to conform to our basis of presentation for this non-GAAP
ratio.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

35

Segment results, reported and adjusted
The following table provides a reconciliation of Wealth Management adjusted results to our reported results. The adjusted
results and measures presented below are non-GAAP measures or ratios.
Wealth Management

Table 172023 (1)Item excluded(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

As reported

Specified item (2)Total revenue
PCL
Non-interest expense
Net income before income taxes
Net income$ 17,544
328
14,1283,088$ 2,427$

Net income available to common shareholders

2,372

Total average common equity (3), (4)24,050

Revenue by business
U.S. Wealth Management (including City National)
U.S. Wealth Management (including City National) (US$ millions)
Key ratios
ROE (5)Pre-tax margin (6)
(1)
(2)
(3)
(4)
(5)
(6)

36

7,969
5,908
9.9%
17.6%

There were no specified items for the year ended October 31, 2022.
Impairment losses on our interest in an associated company.
Total average common equity represents rounded figures.
The amounts for the segments are referred to as attributed capital.
ROE is based on actual balances of average common equity before rounding.
Pre-tax margin is defined as Income before income taxes divided by Total revenue.

Royal Bank of Canada: Annual Report 2023$

Management’s Discussion and Analysis$

Adjusted

242
–
–
242
177

$ 17,786
328
14,1283,330$ 2,604

177

2,549
24,050

$

242
175

$

8,211
6,083
10.6%
18.7%

Personal & Commercial Banking
Personal & Commercial Banking provides a broad suite of financial products and services to individual and business clients fortheir day-to-day banking, investing and financing needs. We are focused on building deep and meaningful relationships with ourclients, underscored by the delivery of exceptional client experiences, the breadth of our product suite, our depth of expertise,
and the features of our digital solutions.

~15 million#1 or #2

38,027

Number of Canadian Banking clients

Ranking in market share for all key
retail and business products

Employees

Revenue by business lines$22.1 billion
Total revenue

68% Personal Banking
27% Business Banking

We operate through two businesses – Canadian Banking and Caribbean & U.S.
Banking. Canadian Banking serves our home market in Canada. We have thelargest branch network, the most ATMs, and one of the largest mobile sales
forces across Canada along with market-leading digital capabilities. In
Caribbean & U.S. Banking, we offer a broad range of financial products andservices in targeted markets.
In Canada, we compete with other Schedule 1 banks, independent trust
companies, foreign banks, credit unions, caisses populaires, auto financing
companies, as well as emerging entrants to the financial services industry.
In the Caribbean, our competition includes banks, emerging digital banks, trust
companies and investment management companies serving retail andcorporate clients, as well as public institutions. In the U.S., we compete
primarily with other Canadian banking institutions that have U.S. operations.

5% Caribbean and U.S. Banking

2023 Operating environment› In response to persistent inflation, the BoC continued tightening its monetary policy, raising the benchmark interest rate by
125 basis points in fiscal 2023; and by 475 basis points since the beginning of March 2022. As a result of these interest rateincreases, we continued to see NIM expansion. The combination of higher NIM and solid volumes drove strong growth in net
interest income.
› The credit environment was impacted by slowing economic growth and rising interest rates, resulting in higher provisions on
performing and impaired loans.
› For Canadian Banking, non-interest expense reflects investments in staff, mainly increased average FTE, marketing costs andongoing investments in technology.
› Our results were also impacted by a higher effective tax rate reflecting the 1.5% increase in the Canadian corporate tax rate,
which was implemented at the beginning of the fiscal year.
› As a result of interest rate increases, housing activity has slowed and household debt servicing costs have increased, driving adecline in mortgage originations from prior year levels.
› We experienced significant growth in term deposit products, reflecting client preference for low-risk products at higher yields,
driven by the BoC’s monetary policy. Despite this, volumes for personal and business demand deposits remained above
pre-pandemic levels.
› We continued to see unfavourable market conditions in fiscal 2023, driving lower sales of mutual fund products, which was also
impacted by the client preference shift to term deposit products. We also continued to see a declining trend in overall tradevolume activity in our Direct Investing business.
› Growth in cards volume was strong in fiscal 2023, reflecting strong acquisition levels. Purchase volumes were stable and reflect
an environment where clients are increasingly mindful of their spending habits.
› Clients are increasingly demonstrating a preference for digital offerings, and we continue to invest in digital solutions toimprove the client experience and deliver personalized advice.
› Our Caribbean Banking business was favourably impacted by increases in interest rates, driving strong net interest income
growth. As well, we saw higher fee-based income, reflecting higher client activity driven by the recovery of the travel industry
since the COVID-19 pandemic.
› In the U.S., higher interest rates had a favourable impact on net interest income.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

37

Strategic priorities
OUR STRATEGYPROGRESS IN 2023

PRIORITIES IN 2024

Accelerate our growth anddeepen relationships

Avion Rewards, the largest proprietary loyalty programin Canada, was recognized as the International Loyalty
Program of the Year in Americas and Best Loyalty /Benefits in a Financial Product at the 2023 International
Loyalty Awards; In 2023, Avion Rewards expanded
access to all Canadians regardless of where they bankor shop, bringing unparalleled savings and flexibility
and making a fundamental shift in how the rewards
program delivers benefits

Continue to build a suite of best-in-class value
propositions, digital experiences and Beyond Banking
Ventures to accelerate client acquisition, engaging
Canadians earlier, more often and in more compellingways

Announced a new loyalty partnership with METRO Inc.
with the launch of the no annual fee moi RBC® Visa‡
credit card, which earns Moi‡ points on all purchases aswell as allows cardholders access to unique savingsand offers from Avion Rewards and its extensive
merchant partner network

Focus on engaging key high-growth client segments andempowering our advisors to build new and deeper
relationships with superior advice to drive industryleading volume growthEstablish additional key partnerships to continue to
add value for our clients
Enable unparalleled value for both consumers andmerchants through a best-in-class loyalty program

Launched Canada’s new First Home Savings Account(FHSA) in April 2023 to help Canadians save tax free for
their first home, making it available as quickly andconveniently as possible through multiple channels,
including RBC Direct Investing, RBC InvestEase® and
RBC in-branch advisors
Acquired OJOHome Canada Ltd., which operates acomprehensive real estate technology platform,
HousefulTM (formerly OJO), bolstered by artificial
intelligence (AI), to further streamline the home buying
journey for Canadians while supporting them at every
stage with intuitive, digitally-enabled and insightsdriven experiences
Continued to build world-class capabilities through the
RBC PayEdgeTM platform, leveraging data to increasestrategic value through industry and client-specificinsights to offer superior working capital solutions toour business clients
Maintained our focus on key high-growth and highvalue segments, such as youth and young adults,
newcomers, business owners, healthcare professionals,
retirees, and HNW clients
Drove significant new-to-RBC client acquisition fromnewcomers and new partnerships, including ICICI Bank
CanadaTransform sales, advice andservice, while digitizing to unlock
productivity

Enhanced NOMI® Forecast – RBC’s cutting-edge
capability that provides clients with a seven-day view
into their future cashflow – to include bill payments,
e-transfers, investment contributions and salary
payments; NOMI Forecast was awarded the Best Use of
AI for Customer Experience at The 2023 Digital Banker
Digital CX Awards
Received highest ranking in Customer Satisfaction with
Retail Banking Advice for a third consecutive year in the
J.D. Power 2023 Canada Retail Banking Advice
Satisfaction StudyEntered a strategic partnership with Conquest Planning
Inc. to bring a next-generation financial planningplatform to clients and financial advisors, using
powerful AI to identify effective financial strategies anddeliver world-class digital advice and planning forclients to help them achieve their financial goals
Recognized as the best small and medium enterprise(SME) bank in North America by Global Finance
Magazine, for the broad array of services offered tobusinesses beyond traditional banking, including Ownr,
the online platform that has helped more than 55,000
entrepreneurs launch their businesses, and RBC Insight
Edge which enables companies to leverage aggregateddata to gain relevant insights into their markets andattract new clients
Collaborated with the Canadian Chamber of Commerceon the launch of SME Institute, a first-of-its kind,
one-stop service that provide SMEs the training,support, and advice they need to adapt, grow and thrive
in a rapidly evolving economy
The first bank in Canada to launch Swift Go through the
RBC PayEdgeTM platform, a new way to make fast,
secure, and cost-effective cross-border payments,
highlighting RBC’s ongoing commitment to innovations
in digital banking and payments

38

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Provide flexibility by continuing to deliver anytime,
anywhere solutions to our clients across all channels
Lead in mobile capabilities and enable fulfillment ofservicing through digital channels with access toadvisors to help clients on their chosen path ofinteraction
Continue to reimagine our branch network to meet theevolving needs of our clients
Continuously upskill our expert advisor network todeliver more personalized insights and addresscomplex advice needs for superior client experience
Leverage digital and agile to drive faster delivery of
products and services while improving productivity andefficiency
Transform our Moneris joint venture to deliver greater
value to Canadian merchants, through integrated value
propositions, products and services

OUR STRATEGYPROGRESS IN 2023

PRIORITIES IN 2024

Build sustainable communities

Launched the RBC Electric Vehicle (EV) Cost Calculator
and established exclusive relationships with two EV
manufacturers – VinFast and Lucid – to contribute to
the expansion of the EV market across Canada
Expanded our sustainable finance product suite forbusinesses, including leveraging Export Development
Canada’s Sustainable Financing Guarantee to increase
our lending support aimed at carbon reduction andsustainable financeContinued to help clients reduce emissions throughnew solutions, delivery of tailored advice throughdedicated teams, and developed industry-specific value
propositions, such as championing climate-smart
agriculture insights and incentives for Canadian
farmers
Launched RBC My Money MattersTM, a new digital
destination with comprehensive content, resources,
and tools to help Canadians take control of theirfinancial wellbeing and make thinking about money lessstressfulContinued to expand RBC’s Survivor Inclusion Initiative
to provide survivors of human trafficking with financial
literacy programming, basic banking services, andaccess to specially trained financial advisors who haveundertaken trauma-informed sensitivity training
Continued to support the path to prosperity and growthof Black entrepreneurs through inclusive financing,community advocacy and sponsorship programs as
part of a five year $100-million commitment tosupporting Black entrepreneurs announced in 2020

Continue to focus on opportunities to support
Canadians and businesses in their transition to net
zero, including building upon our existing portfolio of
products, services and advice
Continue to focus on increasing employee awareness,knowledge and engagement on climate initiatives tobetter support clients on their sustainability journeyContinue to support the financial wellbeing of
Canadians by enabling individuals and small
businesses to build confidence, establish financial
security, and reach their goals through dedicatedproducts, services and ecosystem partnerships

Attract, grow and retain futureready talent

Provided numerous solutions to ensure employees
continued to be productive and engaged, including
targeted initiatives to develop and retain our besttalent, advancing return to premises strategy to
re-ignite connection and collaboration
Invested in future skills development, elevating
performance and fostering a culture of inclusive
leadership through programs, such as people manager
masterclasses, reskilling programs and learning series
Helped employees achieve their work and life goals andsupported health and wellbeing through initiatives,
such as the Make It YoursTM campaign, increased
vacation entitlement for select workforces, andincreased paternity leave benefits for employees in the
Caribbean
Strengthened our culture of inclusion and belonging by
driving growth and development of diverse talentthrough targeted initiatives and programs, including:Canadian Banking Women’s Forum, BIPOC Rotational
Program, and Indigenous People’s Development
ProgramElevate leadership capabilities to grow and develop
talentContinue to strengthen our culture of inclusion andbelonging
Drive a high-performance culture that empowers andenables people to deliver on our ambitious goals

In the Caribbean

Accelerated actions focused on enhancing the client
experience underpinned by programs across our
growth and transformation priorities, including productdevelopment and digitization

Continue our Investing for Growth strategy by
expanding product offerings while progressing
initiatives to simplify and digitize our operational
processes to deliver an enhanced client and employee
experience

In the U.S.

Leveraged momentum from higher cross-border travel
after the COVID-19 pandemic to drive solid businessgrowth.
Continued focus on automation of processes andcontrols, and development of digital tools to enhance
scalability, simplify processes and improve the client
experience

Further aligning products and channel experiences
through deeper integration with the Canadian franchise
to support market share growth while making it easier
to do banking in the U.S.
Continue digitization efforts, focusing on real estate
financing processes and client experience

Outlook
The lagged impact of higher interest rates is slowing economic growth in Canada. The Canadian unemployment rate is still low but has
increased 0.7% since April. Canadian GDP growth has slowed significantly to-date in calendar 2023. The Canadian housing market hascooled after an unexpected strong rebound in the spring following an additional 50 basis points of interest rate increases from the BoC
over the summer. The U.S. economy has remained exceptionally resilient. However, excess pandemic savings and excess job openings
have been declining, the global growth backdrop is softening, credit conditions continue to tighten, and inflation growth has slowed. We
do not expect further interest rate increases from the Fed or the BoC with economic growth and inflation pressures expected to soften.
We expect the Fed to shift to interest rate decreases beginning in the second calendar quarter of 2024, with the BoC following with thefirst cuts to the overnight rate expected in the second half of calendar 2024. In response to this economic environment, we will continue
to pursue industry-leading growth and deepen client relationships to meet the evolving needs of our clients.
The Caribbean region maintained its growth momentum during 2023, supported by tourism-related travel. Real GDP is projected tocontinue to expand in 2024, but at a more normalized rate as economic recovery matures. Regionally, inflation rates decelerated during2023 and are forecasted to normalize through 2024. Risks to the regional outlook remain tilted to the downside as the spillover effects ofglobal risks could weigh on growth prospects. In addition, the threat of weather-induced shocks, particularly hurricanes also pose a risk
to the Caribbean’s economic outlook. Our Investing for Growth strategy continues, with a refreshed focus on delivering exceptional client
value, enhancing operational efficiency and resilience, and developing engaged and empowered teams.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

39

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook section.

Personal & Commercial Banking

Table 18
2023

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

Net interest income
Non-interest income
Total revenue
PCL on performing assets
PCL on impaired assets
PCL
Non-interest expense
Income before income taxes
Net income$$

Revenue by business
Canadian Banking
Personal Banking
Business Banking
Caribbean & U.S. Banking$

Key ratios
ROE
NIM
Efficiency ratio (1)Operating leverage (1)16,074
6,046
22,120
371
1,208
1,579
9,215
11,326
8,266
21,05015,018
6,032
1,070

2022
$

$
$

27.8%
2.74%
41.7%
0.6%

14,019
6,124
20,143
(283)
746
463
8,437
11,2438,370
19,282
13,957
5,325
861
30.9%
2.55%
41.9%
4.0%

Selected balance sheet information
Average total assets
Average total earning assets, net
Average loans and acceptances, net
Average deposits$ 616,600
585,900
593,000
597,500$

575,900
548,900
553,300
552,100

Other information
AUA (2), (3), (4)Average AUA (4)AUM (3)
Number of employees (FTE)$ 336,800
350,800
5,900
38,027$340,300
356,300
5,600
38,450Credit information
PCL on impaired loans as a % of average net loans and acceptances
Other selected information – Canadian Banking
Net income
NIM
Efficiency ratio
Operating leverage
(1)
(2)
(3)
(4)

0.21%
$

7,922
2.69%
40.4%
0.2%

0.14%
$

8,024
2.54%
40.5%
3.8%

See Glossary for composition of this measure.
AUA includes securitized residential mortgages and credit card loans as at October 31, 2023 of $13 billion and $7 billion, respectively (October 31, 2022 – $15 billion and$6 billion).
Represents year-end spot balances.
Comparative amounts have been revised from those previously presented.

Financial performance
2023 vs. 2022
Net income decreased $104 million or 1% from last year, primarily attributable to higher PCL, and higher expenses mainlyreflecting staff-related and marketing costs. These factors were partially offset by higher net interest income.
Total revenue increased $1,977 million or 10%, primarily due to higher net interest income, reflecting higher spreads andaverage volume growth of 8% in deposits and 7% in loans in Canadian Banking.
NIM increased 19 bps, mainly due to the impact of the higher interest rate environment, partially offset by an unfavourable
shift in deposit mix.
PCL increased $1,116 million, mainly reflecting provisions taken on performing loans this year, largely in our Canadian
Banking portfolios, primarily driven by unfavourable changes in credit quality and portfolio growth as compared to releases lastyear which reflected reduced uncertainty relating to the COVID-19 pandemic. Higher provisions on impaired loans, primarily in
our Canadian Banking retail portfolios, also contributed to the increase, resulting in an increase of 7 bps in the PCL on impairedloans ratio.
Non-interest expense increased $778 million or 9%, mainly attributable to higher staff-related costs and higher marketingcosts.
Average loans and acceptances increased $40 billion or 7%, mainly driven by mortgage and business banking loan growth,reflecting client activity.
Average deposits increased $45 billion or 8%, largely reflecting an increase in term deposits, partially offset by a decline indemand deposits.
Business line review
In Canada, we operate through two business lines: Personal Banking and Business Banking.
40

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Personal Banking
Personal Banking offers a full range of products focused on meeting the needs of our individual Canadian clients at every stageof their lives through a wide range of financing and investment products and services. This includes home equity financing,personal lending, chequing and savings accounts, private banking, indirect lending (including auto financing), mutual funds andself-directed brokerage accounts, GICs, credit cards, and payment products and solutions.
We rank #1 or #2 in market share for all key Personal Banking products in Canada supported by the largest retail banking
network in Canada, with 1,143 branches and 4,003 ATMs.
Financial performance
Total revenue increased $1,061 million or 8% compared to last year, primarily due to higher net interest income reflecting higher
spreads and average volume growth of 14% in deposits and 5% in loans.
Average residential mortgages increased 6% compared to last year, mainly due to strong mortgage origination in the firsthalf of the year.
Average deposits increased 14% from last year, largely reflecting an increase in term deposits, partially offset by a decline indemand deposits.
Selected highlights

Table 192023

(Millions of Canadian dollars, except number of)

Total revenue
Other information
Average residential mortgages
Average other loans and acceptances, net
Average deposits
Average credit card balances
Credit card purchase volumes
Branch mutual fund balances (1)Average branch mutual fund balances
AUA – Self-directed brokerage (1)Number as at October 31:
Branches
ATMs
(1)

$

15,018Average residential mortgages, loans and deposits(Millions of Canadian dollars)

2022$

358,400
76,300333,800
20,800174,200
174,700
183,100
128,700

13,957
338,400
75,700293,500
18,200162,200
178,600
194,400
127,600

400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,00002023

Residential mortgages

1,143
4,003

1,162
4,028

2022

Other loans andacceptances, net

Deposits

Represents year-end spot balances.

Business Banking
Business Banking offers a wide range of lending, leasing, deposit, investment, foreign exchange, cash management, auto dealer
financing, trade products, and services to small- and medium-sized commercial businesses across Canada. With one of thelargest teams of relationship managers and specialists in the industry, our commitment to client experience and trusted advice
has earned us leading market share in business lending and deposits.
Financial performance
Total revenue increased $707 million or 13% compared to last year, primarily due to higher net interest income reflecting higher
spreads, and average volume growth of 14% in loans and 2% in deposits. Higher volumes contributed to higher credit fees.
Average loans and acceptances increased 14% and average deposits increased 2%, mainly due to strong growth in priority
sectors and from new client acquisition.
Selected highlights

Table 202023

(Millions of Canadian dollars)

Total revenue
Other information (average)
Loans and acceptances, net
Deposits$

6,032
125,800
241,800

Average loans and acceptances and deposits(Millions of Canadian dollars)

2022
$

5,325
110,800
237,900

250,000
225,000
200,000
175,000
150,000
125,000
100,000
75,00050,00025,000
0

2023

2022

Loans and acceptances, net

Deposits

Caribbean & U.S. Banking
Our Caribbean Banking business provides personal and commercial banking to a range of clients, including individuals, small
businesses, general commercial entities, regional and multi-national corporations, and governments; supported by an extensive
branch, ATM, online, and mobile banking network.
Our U.S. Banking business serves the needs of Canadian retail and small business clients providing personalized, digitallyenabled cross-border banking solutions enabling a cross-border lifestyle in all 50 states across the U.S.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

41

Financial performance
Total revenue increased $209 million or 24% from last year, primarily due to higher net interest income reflecting improved
spreads.
Average loans and acceptances increased 15% and average deposits increased 5%, primarily due to the impact of foreignexchange translation and increased client activity.
Selected highlights

Table 21

(Millions of Canadian dollars,
except number of and percentage amounts)

Total revenue
Other information
NIM
Average loans and acceptances, net
Average deposits
AUA (1), (2)Average AUA (2)AUM (1)
Number as at October 31:
Branches
ATMs
(1)
(2)

2023
$

1,070
4.08%
11,70021,90010,80010,500
5,500
38
271

Average loans and deposits (Millions of Canadian dollars)

2022
$

861
2.90%
10,20020,80010,400
10,2005,300

22,50020,00017,50015,00012,50010,000
7,500
5,000
2,500
0

38
269

2023

2022

Loans and acceptances, net

Deposits

Represents year-end spot balances.
Comparative amounts have been revised from those previously presented.

Wealth Management
Wealth Management is a global business serving clients in key financial centres. We serve affluent, HNW and UHNW individual andinstitutional clients with a comprehensive suite of advice-based solutions and strategies to help them achieve their financial goals.

$17.5 billion> 6,100~ 83%

Total revenue

Client-facing advisors

GAM AUM outperforming the benchmark
on a 3-year basis1

Asset under Administration(AUA)

Assets under Management(AUM)$3,982 billion$1,059 billion

Total AUA

64% Institutional

142

Total AUM

50% Personal

35% Personal

25% Mutual Funds

1% Mutual Funds

25% Institutional

As at September 2023, gross of fees.
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Our lines of business include Canadian WealthManagement, U.S. Wealth Management (including
City National), Global Asset Management (GAM),
International Wealth Management and Investor
Services.
• Canadian Wealth Management is the largest
full-service wealth advisory business in
Canada, as measured by AUA, serving HNW and
UHNW clients• U.S. Wealth Management (including City
National) encompasses our private client group(PCG) and clearing and custody (C&C)
businesses. PCG is the 6th largest full-service
wealth advisory firm in the U.S., as measured by
AUA, and City National is a U.S.-based
relationship bank serving the entertainment
industry, mid-market businesses, HNW
individuals and other clients who value
personalized banking relationships• GAM is the largest retail mutual fund company
in Canada as measured by AUM, as well as aleading institutional asset manager• International Wealth Management serves HNW
and UHNW clients, primarily through key
financial centres in the U.K., Ireland, theChannel Islands and Asia
• Investor Services safeguards client assets andsupports the growth of Canadian and U.K. asset
managers and asset owners, investment
counsellors and other financial institutions

2023 Operating environment› Earnings in the current fiscal year benefitted from the high interest rate environment reflecting rate increases by the Fed, BoC
and other central banks, while shifting client preferences in favour of higher yielding products and unfavourable market
conditions impacted our fee-based revenue.
› Our wealth advisory businesses performed well with continued net positive flows of fee-based client assets reflecting thestrength of our business driven by the quality of our advice, the breadth of our investment and holistic wealth planningsolutions and clients’ trust in our brand. The mutual fund sector continues to be impacted by lower sales due to the highinterest rate environment and market volatility.
› Results for our Investor Services business were impacted by industry headwinds, such as continued pricing pressure, partially
offset by rising interest rates.
› We continued to invest in our people and technology to maintain our competitive advantage and increase efficiencies in anenvironment characterized by market volatility, rapidly changing client preferences and increasing regulatory requirements.
› The credit environment was impacted by slowing economic growth and rising interest rates, resulting in higher provisions on
impaired and performing loans.

Strategic priorities
OUR STRATEGYPROGRESS IN 2023

PRIORITIES IN 2024

In Canada, be the premier service
provider for HNW and UHNW clients

Further extended our position as industry leader in our
full-service private wealth businessContinue to retain and attract top-performing advisors tostrengthen our talent advantage

Continued to focus on holistic wealth planning, including
advisor training on intergenerational and businesswealth transfer

Deliver a differentiated client experience throughenriched advisor-client interactions and seamless digital
experiences

Continued to expand RBC® Premier Banking to deepenbanking relationships with Wealth Management clients

Deepen client relationships by leveraging the combined
strengths across other business segments with a focus
on the business owner client segment

Focused on the business owner client segment,
deepening client relationships across the various
business segments
Continued to enhance our digital and data capabilities todrive increased client satisfaction and advisor
productivity

Continue to invest in digital solutions to streamline andimprove efficiency and advisor productivity
Modernize legacy infrastructure and systems to ensureongoing resiliency in our technology platforms

Implemented unique capabilities that are becoming
increasingly important to our client base, such as private
alternative investment products
In the U.S., become the leading
private and commercial bank andwealth manager in our key markets

In select global financial centres,
become the most trusted regional
private bank

In asset management, be a leading,diversified asset manager focused on
global institutional and North
American retail clients

Continued to invest in key areas needed to grow our U.S.
Wealth Management business, including substantial
financial advisor recruitment, executing on our
technology transformation and providing proactive
liquidity to our clients through a revamped securitiesbased lending platform

Continue to deliver an exceptional client experience fortargeted HNW, UHNW, middle market and businessbanking segments

At City National, we continued to focus on enhancing ourrisk management and compliance capabilities across thethree lines of defence for sustainable, organic growth in
the future

At City National, we will continue to focus on enhancing
our risk management and compliance capabilities acrossthe three lines of defence for sustainable, organic growthin the future

Continued to deliver on successful growth initiatives,bringing the full strength and breadth of RBC to ourclients

Focus on growing market share in target markets

Focused on delivering a differentiated client experienceby leveraging our global capabilities

Continue to deliver an exceptional client experience andincrease business effectiveness and talent capabilities

Leveraged RBC Brewin Dolphin to increase distribution,
AUM and client base to position ourselves as top
five largest wealth manager in the U.K.

Successful integration of RBC Brewin Dolphin to enhanceclient value proposition and consolidation of position in
the U.K. local market

In Asia, continued growth momentum achieved throughthe addition of experienced client-facing advisors andnet new assets

In Asia, focus on deepening cross-business, global
collaboration and enhancing digital and productcapabilities

Maintained #1 market share in Canadian mutual fund
AUM

Continue to focus on delivering exceptional investment
performance and valued insights with the client
experience at the centre of all that we do

RBC® iShares strategic alliance maintained #1 market
share in Canadian ETFs
Completed shift to a more unified asset management
operating model to increase collaboration and better
leverage infrastructure and people resources

Attract, grow and retain future-readytalentAdvanced our representation and strengthened inclusionof historically underrepresented groups through targeted
engagement initiatives and partnerships including: Ivey’s
Women in Asset Management Program, Women Advisor
Experience Listening Sessions, Diversity LeadershipCouncils and Employee Resource Groups

Leverage the combined strengths within U.S. WealthManagement (including City National) and CapitalMarkets to deepen client relationships

Continue to leverage our global strengths to better serve
clients

Continue to expand our investment capabilities to meet
evolving client needs in our target distribution regions

Elevate leadership capabilities to grow and develop
talentContinue to strengthen our culture of inclusion andbelonging
Drive a high-performance culture that empowers andenables people to deliver on our ambitious goals

Outlook
The ongoing uncertainty in the macroeconomic environment, including the impact of high interest rates and an expected
slowdown in economic growth, will continue to impact markets.
Despite this uncertainty, we believe our diversified businesses remain well-positioned to continue growing our leading
position in Canada and increasing our market share in the HNW and UHNW client segments globally, leveraging the strength ofManagement’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

43

our brand, reputation and solid financial position. Our strategy remains unchanged as we continue to focus on delivering an
unmatched client experience through holistic goals-based advice, attracting and retaining top-performing advisors, andcollaborating across the enterprise to bring the full breadth of our capabilities to our clients. We will continue to invest in ourpeople and technology to improve client and advisor experiences, drive operational efficiencies, and further strengthen our risk,
compliance and controls infrastructure to meet heightened regulatory requirements.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.
Wealth Management

Table 222023
4,495
13,04917,544
153
175
328
14,1283,088
2,427(Millions of Canadian dollars, except number of, percentage amounts and as otherwise noted)

Net interest income
Non-interest income
Total revenue
PCL on performing assets
PCL on impaired assets
PCL
Non-interest expense
Income before income taxes
Net income
Revenue by business
Canadian Wealth Management
U.S. Wealth Management (including City National)
U.S. Wealth Management (including City National) (US$ millions)Global Asset Management
International Wealth Management
Investor Services (2)Key ratios
ROE
NIM
Pre-tax margin (3)Selected balance sheet information
Average total assets
Average total earning assets, net
Average loans and acceptances, net
Average deposits (2)Other information
AUA (2), (4), (5)U.S. Wealth Management (including City National) (4)U.S. Wealth Management (including City National) (US$ millions) (4)Investor Services (4)AUM (4)
Average AUA (2)Average AUM
PCL on impaired loans as a % of average net loans and acceptances
Number of employees (FTE)
Number of advisors (6)Adjusted results (7)Total revenue – adjusted
Income before income taxes – adjusted
Net income – adjusted
U.S. Wealth Management (including City National) revenue – adjusted
U.S. Wealth Management (including City National) revenue (US$ millions) – adjusted
Key ratios – adjusted (7)Selected balance sheet and other information
ROE – adjusted
Pre-tax margin – adjusted

$

$
$

4,443
7,969
5,908
2,626
1,273
1,233

$

$
$

9.9%
2.66%
17.6%

2022 (1)3,886
12,357
16,24320
13
33
12,015
4,195
3,210
4,308
7,448
5,757
2,667
426
1,394
15.8%
2.47%
25.8%

$

193,100
169,300
113,800
163,800$

177,400
157,100
102,400
198,000$

3,981,500
752,700
542,800
2,488,600
1,058,900
4,987,200
1,058,000
0.15%
25,196
6,169$

5,294,800
700,100
513,700
3,906,900
991,500
5,710,700
966,300
0.01%
26,1506,158$

17,786
3,330
2,604
8,211
6,083

$

16,243
4,195
3,210
7,448
5,757

10.6%
18.7%

15.8%
25.8%

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items(Millions of Canadian dollars, except percentage amounts)

Increase (decrease):
Total revenue
PCL
Non-interest expense
Net income
Percentage change in average U.S. dollar equivalent of C$1.00
Percentage change in average British pound equivalent of C$1.00
Percentage change in average Euro equivalent of C$1.00
(1)
(2)

(3)
(4)
(5)
(6)
(7)
44

2023 vs. 2022
$

441
10
369
50
(4)%
(3)%
(5)%

Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of
Canada section.
On July 3, 2023, we completed the partial sale of RBC Investor Services operations. The completion of the sale of the business of the U.K. branch of RBC Investor Services
Trust and the RBC Investor Services business in Jersey remains subject to customary closing conditions, including regulatory approvals. For further details, refer toNote 6 of our 2023 Annual Consolidated Financial Statements.
Pre-tax margin is defined as Income before income taxes divided by Total revenue.
Represents year-end spot balances.
In addition to Canadian Wealth Management, U.S. Wealth Management (including City National), International Wealth Management and Investor Services AUA includes$6,200 million (2022 – $6,400 million) related to GAM.
Represents client-facing advisors across all our Wealth Management businesses.
These are non-GAAP measures and non-GAAP ratios. During the year ended October 31, 2023, we recognized impairment losses of $177 million (before–tax $242 million) on
our interest in an associated company. For further details on this specified item, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Client assets – AUA

Table 23
2023

(Millions of Canadian dollars)

AUA, beginning balance (1)Asset inflows
Asset outflows$

1,322,300
380,600(325,100)

18,20044,400–42,40055,500(153,000)
79,80083,300Total net flows (1)Market impact
Acquisitions/dispositions
Foreign exchange/other

86,80010,1001,492,900

1,387,900

Total market, acquisition/dispositions and foreign exchange/other impact (1)AUA, balance at end of year (1)2022

1,387,900 $
414,600(396,400)

2,488,600

Investor Services, balance at end of year (2)Total AUA$

3,981,500

3,906,900$

5,294,800(1)Includes AUA from the following lines of business; Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management andInternational Wealth Management.

(2)

Includes the impact from the partial sale of RBC Investor Services operations. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial Statements.

AUA by geographic mix and asset class

Table 24
2023

(Millions of Canadian dollars)

Canada (1), (2)Money market
Fixed income
EquityMulti-asset and other$

21,60046,10086,700388,800

2022$

26,20030,50081,800369,500

Total Canada

543,200

508,000

U.S. (1), (2)Money market
Fixed income
EquityMulti-asset and other

31,600131,600
271,600
318,000

40,700116,000
246,300
297,100

Total U.S.

752,800

700,100

Other International (1), (2)Money market
Fixed income
EquityMulti-asset and other

18,80011,30049,300117,500

16,6008,900
47,000107,300

Total International
AUA, balance at end of year (2)196,900

179,800

1,492,900

1,387,900

2,488,600

Investor Services, balance at end of year (3)Total AUA$

3,981,500

3,906,900$

5,294,800(1)Geographic information is based on the location from where our clients are served.

(2)

Includes AUA from the following lines of business; Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management andInternational Wealth Management.

(3)

Includes the impact from the partial sale of RBC Investor Services operations. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial Statements.

Client assets – AUM

Table 25
2023
Money
market(Millions of Canadian dollars)

AUM, beginning balanceInstitutional inflows
Institutional outflows
Personal flows, net$

37,800160,200(159,400)
800

Fixed
incomeEquity$ 195,600 $ 129,400
52,5007,000(42,300)(10,000)
2,600(2,100)2022
Multi-asset
and other$ 628,700 $
19,500(14,300)
9,000

Total

Total

991,500 $ 1,000,600
239,200
175,600(226,000)(180,000)
10,30021,000Total net flows
Market impact
Acquisition/dispositions
Foreign exchange

1,600
800
–
400

12,800
2,900
–
3,500

(5,100)
4,600
–
800

14,20019,200–11,70023,50027,500–16,40016,600(116,700)
58,50032,500Total market, acquisition/dispositions
and foreign exchange impact

1,200

6,400

5,400

30,90043,900(25,700)

40,600$ 214,800$ 129,700

AUM, balance at end of year$

$ 673,800 $ 1,058,900

Management’s Discussion and Analysis$

991,500

Royal Bank of Canada: Annual Report 2023

45

Financial performance
2023 vs. 2022
Net income decreased $783 million or 24% from last year, mainly attributable to higher staff costs and professional fees, largely
reflecting continued investments in the operational infrastructure of City National. Higher PCL and the impact of the specified item
relating to impairment losses on our interest in an associated company also contributed to the decrease. These factors werepartially offset by higher net interest income driven by higher interest rates. Adjusted net income decreased $606 million or 19%.
Total revenue increased $1,301 million or 8%, primarily due to the inclusion of RBC Brewin Dolphin, higher net interest income
driven by higher interest rates partially offset by lower deposits, as well as the impact of foreign exchange translation. These
factors were partially offset by the impact of the specified item relating to impairment losses on our interest in an associatedcompany. Adjusted total revenue increased $1,543 million or 9%.
PCL increased $295 million, primarily in U.S. Wealth Management (including City National), mainly reflecting higher
provisions on impaired loans largely in the real estate and related and telecom and media sectors resulting in a 14 bps increasein the PCL on impaired loans ratio. Higher provisions on performing loans, primarily reflecting unfavourable changes to ourmacroeconomic forecast and credit quality, also contributed to the increase.
Non-interest expense increased $2,113 million or 18%, mainly due to the inclusion of RBC Brewin Dolphin and related costs.
Higher staff costs and professional fees, largely reflecting continued investments in the operational infrastructure of City
National, as well as the impact of foreign exchange translation also contributed to the increase.
AUA decreased $1,313 billion or 25%, primarily in the Investor Services line of business reflecting the partial sale of RBC
Investor Services operations. This was partially offset by AUA growth in other Wealth Management lines of business, mainly due
to the impact of market appreciation and foreign exchange translation as well as net sales.
AUM increased $67 billion or 7%, primarily due to the impact of market appreciation. Net sales and the impact of foreignexchange translation also contributed to the increase.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Business line review
Canadian Wealth Management
Canadian Wealth Management includes our full-service Canadian wealth advisory business, which is the largest in Canada as
measured by AUA, with over 2,000 investment advisors providing comprehensive financial solutions with a focus on HNW and
UHNW clients. Additionally, we provide discretionary investment management and estate and trust services to our clients
through over 120 investment counsellors and over 115 trust professionals across Canada.
We compete with domestic banks and trust companies, investment counselling firms, bank-owned full-service brokerages
and boutique brokerages, mutual fund companies and global private banks. In Canada, bank-owned wealth managers continue tobe the major players.
Financial performance
Revenue increased $135 million or 3% from last year, primarily due to higher average fee-based client assets, largely driven by net
sales, as well as higher net interest income from higher interest rates partially offset by lower deposits.
Selected highlights(Millions of Canadian dollars)

Total revenue
Other information
Average loans and acceptances,
net
Average deposits
AUA (1)
AUM (1)
Average AUA
Average AUM(1)

Average AUA and AUM (Millions of Canadian dollars)

Table 26

$

2023

2022

4,443 $

4,308

600,000
500,000

5,200
20,900548,600
184,300
536,100
182,200

5,600
28,600511,300
171,700
519,600
171,800

400,000
300,000
200,000
100,000
0

2023

2022

AUA

Represents year-end spot balances.

AUM

U.S. Wealth Management (including City National)
U.S. Wealth Management (including City National) encompasses PCG and our C&C businesses. PCG is the 6th largest full-service
wealth advisory firm in the U.S., as measured by number of advisors, with over 2,100 financial advisors. Our C&C businessdelivers clearing and execution services for small to mid-sized independent broker-dealers and registered investment advisor
firms. City National provides comprehensive financial solutions to affluent individuals, entrepreneurs, professionals, theirbusinesses and their families, and other clients who value personalized banking relationships through a high-touch service
model, proactive advice and financial solutions. City National offers a broad range of lending, deposit, cash management,
equipment financing, wealth management and other products and services. In the U.S., we operate in a fragmented and highly
competitive industry. Our competitors include other broker-dealers, commercial banks and other financial institutions that
service HNW and UHNW individuals, entrepreneurs and their businesses.

46

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Financial performance
Revenue increased $521 million or 7% from last year. In U.S. dollars, revenue increased $151 million or 3%, mainly due to higher
net interest income driven by higher interest rates partially offset by lower deposits. Higher revenue from sweep deposits also
contributed to an increase in transactional revenue. These factors were partially offset by the impact of the specified item
relating to impairment losses on our interest in an associated company and gains on the sale of certain non-core affiliates in thesame period last year. Adjusted revenue in U.S. dollars increased $326 million or 6%.
NIM was up 15 bps, reflecting the impact of the higher interest rate environment.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Selected highlights

Table 27

(Millions of Canadian dollars,
except as otherwise noted)

Total revenue
Other information(Millions of U.S. dollars)
Total revenue
NIM
Average earning assets, net
Average loans, guarantees andletters of credit, net
Average deposits
AUA (1)
AUM (1)
Average AUA
Average AUM
(1)

$

2023
7,969 $

2022
7,448

Average AUA and AUM (Millions of U.S. dollars)

600,000
500,000
400,000

5,908
2.53%
103,500

5,757
2.38%
98,100300,000

75,90083,200542,800
176,900
544,000
174,500

68,80090,600513,700
159,200
538,100
168,1000

200,000
100,000
2023

2022

AUA

AUM

Represents year-end spot balances.

Global Asset Management
GAM provides global investment management services and solutions for individual and institutional investors in Canada, theU.K., the U.S., Europe and Asia. We provide a broad range of investment management services through mutual, pooled andprivate funds, fee-based accounts and separately managed portfolios. We distribute our investment solutions through a broad
network of bank branches, our self-directed and full-service wealth advisory businesses, independent third-party advisors andprivate banks, and directly to individual clients. We also provide investment solutions directly to institutional clients, including
pension plans, insurance companies, corporations, endowments and foundations.
We are the largest retail fund company in Canada measured by AUM, as well as a leading institutional asset manager. We
face competition in Canada from banks, insurance companies and asset management organizations. The Canadian fundmanagement industry is large and mature, but remains a relatively fragmented industry.
In the U.S., our asset management business offers investment management solutions and services, primarily to institutional
investors, and competes with independent asset management firms, as well as those that are part of national and internationalbanks and insurance companies.
Internationally, through our global capabilities distributed under the brand RBC BlueBay Asset Management, we offer
investment management solutions for institutions and, through private banks including RBC Wealth Management®, to HNW and
UHNW investors. We face competition from asset managers that are owned by international banks, as well as national andregional asset managers in the geographies where we serve clients.
Financial performance
Revenue decreased $41 million or 2% from last year, mainly due to lower average fee-based client assets, largely driven byunfavourable market conditions. This was partially offset by changes in the fair value of seed capital investments.
Selected highlights

Table 28

(Millions of Canadian dollars)

Total revenue
Other information
Canadian net long-term mutualfund sales (redemptions) (1)
Canadian net money market
mutual fund sales(redemptions) (1)AUM (2)Average AUM
(1)
(2)

$

2023
2,626 $

2022
2,667

Average AUM (Millions of Canadian dollars)

600,000
500,000(11,367)(5,246)400,000
300,000

1,121
541,300
550,700(127)
522,700
562,200

200,000
100,000
0

2023

2022

As reported to the Investment Funds Institute of Canada. Includes allprospectus-based mutual funds across our Canadian GAM businesses.
Represents year-end spot balances.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

47

International Wealth Management
International Wealth Management includes operations in the U.K., Ireland, the Channel Islands and Asia. We provide customized
and integrated wealth management solutions to HNW, UHNW and corporate clients in key financial centres. Competitors to ourInternational Wealth Management business include global wealth managers, traditional private banks and domestic wealthmanagers.
Financial performance
Revenue increased $847 million from last year, primarily reflecting the inclusion of RBC Brewin Dolphin, as well as an increase in
net interest income driven by higher interest rates.
Selected highlights(Millions of Canadian dollars)

Total revenue
Other information
Average loans, guarantees
and letters of credit, net
Average deposits
AUA (1), (2)AUM (1), (2)Average AUA
Average AUM(1)(2)

Average AUA and AUM (Millions of Canadian dollars)

Table 29

$

2023

2022

1,273 $

426

200,000
150,000

4,800
11,800185,400
87,900185,200
89,6005,000
12,300170,100
80,10097,20015,400100,000
50,000
0

2023

2022

AUA

Represents year-end spot balances.
AUA and AUM reflect the inclusion of $79,800 million and $72,400 million,
respectively, due to the acquisition of RBC Brewin Dolphin, which closed on
September 27, 2022.

AUM

Investor Services
Investor Services delivers asset servicing solutions to Canadian and U.K. asset managers and asset owners, investment
counsellors and other financial institutions. Our product and service offering includes custody, fund administration, shareholder
services, middle office and market services (including foreign exchange, securities finance and cash/liquidity management).
Competitors to our Investor Services business include domestic and international custodians with Canadian and U.K. operations.
Financial performance
Revenue decreased $161 million or 12% from last year, primarily due to reduced revenue following the partial sale of RBC Investor
Services operations, partially offset by the gain on the sale.
Selected highlights
2023(Millions of Canadian dollars)

Total revenue (1)Other information
Average deposits (1)AUA (1), (2)Average AUA (1)
(1)

(2)

48

Average AUA (Millions of Canadian dollars)

Table 30$

1,233
18,0002,488,600
3,525,500

2022
$

1,394
39,203
3,906,900
4,392,600

6,000,000

4,000,000

2,000,000

Amounts reflect the impact of the partial sale of RBC Investor Services
operations, which was completed on July 3, 2023. For further details, refer toNote 6 of our 2023 Annual Consolidated Financial Statements.
Represents year-end spot balances.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

0

2023

2022

Insurance
RBC Insurance® offers a comprehensive suite of advice and solutions for individual and business clients, including life, health,wealth, property & casualty, travel, group benefits, annuities, and reinsurance.

$5.7 billion> 4.8 million

2,781

Total revenue

Number of clients

Employees

Premiums and Deposits$5.9 billion
Total premiums
and deposits

45% Life and Health

RBC Insurance® is one of the largest Canadian bank-owned insuranceorganizations on a total revenue basis and operates under two business lines:
Canadian Insurance and International Insurance.
In Canada, we offer life, health, travel, wealth accumulation solutions, andannuities to individuals and businesses. We also offer property & casualty
insurance through a distribution agreement with Aviva Canada. Our products
and services are distributed through multiple channels, including proprietarysales force, digital platforms, and a network of independent brokers andpartners.
Outside Canada, we operate globally in the reinsurance and retrocession
markets offering longevity reinsurance, life retrocession, and reinsurance for
creditor life, disability, and critical illness.

45% Annuity
8% Segregated Fund Deposits
2% Property and Casualty

2023 Operating environment› In Canada, the industry continued to face challenges and opportunities, including a higher interest rate environment,
generational and demographic change, the growing importance of an omnichannel experience, and novel distribution
partnerships to reach new client segments. In response, we continued our journey towards becoming a client-led organization
underpinned by superior advice and solutions to provide clients with the coverage they need. We sustained a strong presence
across most insurance businesses serving retail and business clients and remain well-positioned to deliver innovative
products through our strong network of advisors and partners. Additionally, progress has been realized across our strategic
objectives to establish digital leadership and to develop and sustain excellence in distribution. Prioritizing investment in ourpeople and positioning ourselves as an employer of choice also remains a key area of focus. Our ambition is to be at theforefront of tailored, client-led advice and solutions, leveraging technology and data.
› In the U.K., the reinsurance market for longevity risk transfer remains competitive. Our business strategy continues toselectively pursue niche opportunities in the longevity markets as potential clients actively manage longevity risk.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

49

Strategic priorities
OUR STRATEGYPROGRESS IN 2023

PRIORITIES IN 2024

Grow our core insurance business

Generated over $1B in group annuity new businesssales representing ~20% growth, and providing
retirement income security to more Canadianretirees
Maintained leadership in market share forindividual disability insurance
Enhanced our mental health offering in
partnership with Personalize Prescribing Inc.
(PPI), providing access to affordable drug
compatibility testing for all group plan members
and their eligible dependents before a mental
illness becomes debilitating

Drive profitable business growth by continuing thejourney to become a client-led organization
underpinned by superior advice and solutions
Grow our client base by leveraging proprietarychannels to deepen client relationships acrossmultiple products and solutions

Develop and sustain excellence in distribution

Ranked #1 for broker relationship management
capabilities1 and #1 proprietary insurance
distribution network2
Reduced end-to-end cycle time for life insurance
applications by 5 days through process re-design
Launched RBC YourTerm® on the eApplication
platform for our proprietary sales force, providing
digital signature capability, and eliminating theneed for signature booklets

Drive deep client relationships throughdistribution excellence, including channel growthand by supporting our agents and partners with
best-in-class tools, and unique value propositions

Accelerate investments in product innovation,
digitization, and data

Achieved a near 40% reduction in claim decisiontime for individual disability claims throughend-to-end process review and optimization
Developed and implemented predictive analytics
data models to assist in claims processing, fraud
detection, and personalized productrecommendations for clients
Launched digital enrollment solutions for
Guarantee Standard Issue® (GSI®) clients,
automating the entire intake process including
application, underwriting, policy issue, settlement,
and online policy view
Partnered with Epilogue Wills, one of the leading
digital estate planning tools in the market,
launching a new digital capability to embed a fully
integrated and interactive quote for the RBC
Simplified® Term insurance productLaunched Wealth electronic forms for segregatedfunds to simplify the way we do business by
reducing manual transaction costs while also
improving the advisor and client experience

Invest in technology, digital, and data capabilities
to drive market leading experience withpersonalized, easy to navigate end-to-end
integrated consumer journeys

Evolve our risk culture

Published the inaugural market update on thefunds in participating life account. The funds
outperformed the overall market as well as
participating competitor funds in a turbulent year
In partnership with Medaca Health Group, weenhanced our disability claims management
practices by providing individuals on disability
and struggling with mental health diagnosis, with
rapid access to workplace psychiatrists andmental health professionals
Progressed final preparations for the
implementation of the new accounting standard
IFRS 17 effective for us on November 1, 2023

Evolve our robust risk frameworks, controls, andrisk culture to enable business growth in strategicareas, protect clients, and meet the expectationsof both federal and provincial regulators

Attract, grow, and retain future-ready talent

Remained a highly engaged, diverse workforce
receptive to change and willing to go above andbeyond to serve our clients and deliver strong ROE
to RBC
Launched a Diversity Champion program topromote awareness and discussion on
psychological safety and explore the individualand collective meaning of diversity, inclusion,
equity and belonging

Elevate leadership capabilities to grow anddevelop talentContinue to strengthen our culture of inclusion
and belonging
Drive a high-performance culture that empowers
and enables people to deliver on our ambitious
goals

Outlook
The insurance industry is expected to continue experiencing change in fiscal 2024 driven by demographic change, the growing
importance of the omnichannel experience, clients’ need for holistic financial advice, and distribution innovation. As Canadians
focus more attention on having a seamless experience transitioning between a digital interface and advisors, we will remain
focused on further strengthening our client-led advice and solutions and leveraging technology and data to provide a seamlessclient experience. We will seek to maintain our strength by investing in operational improvements, enhancing the omnichannel
client experience, and focusing on sustainable growth. This will enable achievement of our goal of being an innovative, clientfocused provider of a full suite of insurance solutions and should allow us to thrive in a rapidly changing environment.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.
1
2

50

NMG Consulting Canadian Individual Life Insurance Study 2022
Investment Executive Insurance Advisors’ Report Card
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Insurance

Table 312023

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

Non-interest income
Net earned premiums
Investment Income, gains/(losses) on assets supporting insurance policyholder liabilities (1)Fee income
Total revenue
PCL
Insurance policyholder benefits and claims (1)Insurance policyholder acquisition expense
Non-interest expense
Income before income taxes
Net income
Revenue by business
Canadian Insurance
International Insurance$$$

Key ratios
ROE

Other information
Premiums and deposits (2)Canadian Insurance
International Insurance
Insurance claims and policy benefit liabilities
Fair value changes on investments backing policyholder liabilities (1)Number of employees (FTE)

(2)

3,087
2,588

$

$
$

37.3%

Selected balance sheet information
Average total assets

(1)

5,131
326
218
5,675
–
3,699
323
653
1,000
803

2022
4,653
(1,363)
220
3,510
–
1,468
315
588
1,139
857
653
2,857
36.4%

$

23,500$22,500$5,929 $
3,385
2,544
11,966
(91)
2,781

5,498
2,999
2,499
11,511(1,888)2,731

Includes unrealized gains and losses on investments backing policyholder liabilities attributable to fluctuation of assets designated as FVTPL. The investments which
support actuarial liabilities are predominantly fixed income assets designated as FVTPL. Consequently, changes in the fair values of these assets are recorded inInsurance premiums, investment and fee income in the Consolidated Statements of Income and are largely offset by changes in the fair value of the actuarial liabilities,
the impact of which is reflected in PBCAE.
Premiums and deposits include premiums on risk-based individual and group insurance and annuity products as well as segregated fund deposits, consistent withinsurance industry practices.

Financial performance
2023 vs. 2022
Net income decreased $54 million or 6% from last year, largely due to higher capital funding costs, partially offset by improved
claims experience.
Total revenue increased $2,165 million or 62%, primarily reflecting the change in fair value of investments backing
policyholder liabilities, higher group annuity sales, and business growth across most products, all of which are largely offset in
PBCAE as indicated below.
PBCAE increased $2,239 million, primarily reflecting the change in fair value of investments backing policyholder liabilities,
higher group annuity sales, and business growth across most products, all of which are largely offset in revenue. These factors
were partially offset by improved claims experience.
Non-interest expense increased $65 million or 11%, largely due to higher staff-related costs and ongoing technology
investments.
Business line review
Canadian Insurance
We offer life, health, travel, wealth accumulation solutions, and annuities to individuals and businesses across Canada. We alsooffer property & casualty insurance through a distribution agreement with Aviva Canada. Our life and health portfolio includes
participating whole life, term life, critical illness, disability, and group benefits, including long-term disability, and health anddental insurance. Wealth solutions include a family of segregated funds as well as individual annuities. Our travel products
include out-of-province/country medical coverage, and trip cancellation and interruption insurance.
Our group annuities business helps defined benefit pension plan sponsors better manage and control risk. RBC Insurance®
has a set of strategies and initiatives aimed at building our momentum and positioning us for growth in this product line, wherecompanies are increasingly looking to transfer the risks associated with their pension obligations to insurance companies –either through group annuity contracts or longevity swap products.
In Canada, many of our competitors specialize in either life and health, wealth, or in property and casualty products. As amulti-line carrier, we offer a broad suite of solutions, increasing convenience for our clients. Many of our solutions hold market
leadership positions, including our disability insurance, term life, and group annuity products.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

51

Financial performance
Total revenue increased $2,434 million from last year, primarily reflecting the change in fair value of investments backing
policyholder liabilities, higher group annuity sales, and business growth across most products, all of which are largely offset in
PBCAE.
Premiums and deposits increased $386 million or 13%, mainly driven by group annuity and individual and group life andhealth sales, partially offset by segregated fund products.
Selected highlights(Millions of Canadian dollars)

Total revenue
Other information
Premiums and depositsLife and healthProperty and casualty
Annuity
Segregated fund deposits
Fair value changes on investmentsbacking policyholder liabilities

Table 322023
$ 3,087

2022
$

653

1,614
108
1,067
596

1,416
81
834
668

(224)

(2,259)Premiums and deposits (Millions of Canadian dollars)
4,000
3,000
2,000
1,000
0
2023

2022

Life and healthAnnuity

Property and casualty

Segregated fundInternational Insurance
International Insurance is comprised of our reinsurance product lines which reinsure risks of other insurance and reinsurancecompanies. We offer life, health, and longevity reinsurance solutions.
The global reinsurance market is competitive as there are many participants. Market share is largely held by a small numberof reinsurers, with RBC Insurance® continuing to selectively pursue niche opportunities.
Financial performance
Total revenue decreased $269 million or 9% from last year, primarily reflecting the change in fair value of investments backing
policyholder liabilities, which is largely offset in PBCAE.
Premiums and deposits increased $45 million or 2%.
Selected highlights(Millions of Canadian dollars)

Total revenue
Other information
Premiums and depositsLife and healthAnnuity
Fair value changes on investmentsbacking policyholder liabilities

Table 33
2023

2022

$ 2,588$ 2,857

1,040
1,504

1,044
1,455

133

371

Premiums and deposits (Millions of Canadian dollars)
4,000
3,000
2,000
1,000
0
2023

Life and health

52

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

2022

Annuity

Capital Markets
RBC Capital Markets® is a premier global investment bank providing expertise in advisory & origination, sales & trading,lending & financing and transaction banking to corporations, institutional clients, asset managers, private equity firms andgovernments globally. Our professionals provide clients with the advice, products, and services their businesses need from 60
offices in 16 countries. Our presence extends across North America, the U.K. & Europe, Australia, Asia and other regions.

> 21,500

#9

7,253

Number of clients

Global league table rankings1

Employees

Revenue by Geography$11.1 billion
Total revenue

49% U.S.
29% Canada
17% U.K. & Europe
5% Australia, Asia &other regions

We operate two main business lines, Corporate & Investment Banking and
Global Markets.
In North America, we offer a full suite of products and services which include
equity and debt origination and distribution, advisory services, sales & trading,and transaction banking. In Canada, we are a market leader with a strategicpresence in all lines of capital markets businesses. In the U.S., where ourcompetitors include large global investment banks, we have a full industry
sector coverage and investment banking product range, as well as capabilitiesin credit, secured lending, municipal finance, fixed income, currencies &commodities, and equities.
Outside North America, we have a targeted strategic presence in the U.K. &Europe, Australia, Asia & other markets aligned to our global expertise. In the
U.K. & Europe, we offer a diversified set of capabilities in key industry sectors offocus. In Australia and Asia, we compete with global and regional investmentbanks in targeted areas aligned to our global expertise, including fixed income
distribution and currencies trading, secured financing, as well as corporate &investment banking.

2023 Operating environment› The fiscal 2023 operating environment was characterized by an uncertain outlook amidst financial sector turmoil, slower
economic growth, persistent inflation and ongoing geopolitical risks. While industry-wide fee pools continue to remain muted
as clients largely maintain a risk-off position, our market share gains helped deliver strong results.
› Trading activity remained elevated as we saw improvement in the credit trading environment as well as robust results inmacro-focused businesses, such as rates and foreign exchange, underpinned by strong client flows. We continued to bedisciplined with our moderate growth strategy in our lending business. Despite elevated funding costs putting pressure on net
interest margins, we delivered strong results and our balance sheet strength enabled us to continue to support our clientsduring the 2023 fiscal year.
› The credit environment was impacted by slowing economic growth and rising interest rates, resulting in higher provisions on
impaired and performing loans.

1

Source: Dealogic, based on global investment bank fees, Fiscal 2023
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

53

Strategic priorities
OUR STRATEGYPROGRESS IN 2023

PRIORITIES IN 2024

Grow and deepen client relationships

Delivered holistic coverage to clients anddeepened key relationships, resulting in highquality mandates and notable wins in Corporate &Investment Banking and Global Markets

Extend our client centric approach and drive
multi-product global client relationships to gain
market shareAwarded Best Investment Bank in Canada as partof Euromoney’s Awards of Excellence in 2023
Notable client examples include:
Exclusive Buyside Advisor to Saint-Gobain on•
its C$1.3 billion acquisition of Building
Products of Canada
Joint Active Bookrunner on American Water•
Works Company’s US$1.7 billion follow-on
equity offering
Lead with advice and extend capabilities

Leverage digital and data to deliver
innovative solutions

Prioritize and align for impact

Drive agility and ease of doing business

Engage, enable and empower our talent

Strengthen client coverage in underpenetrated
sectors and products
Drive greater collaboration and connectivity
across RBC to better support clients

Built new product capabilities, including in U.S.
Cash Management, and expanded in advisory
areas including in risk solutions to lead with ideas
and insights
Notable client examples include:
Exclusive Financial Advisor to TransAlta•
Corporation and provided fairness opinion to
the Board of Directors on the acquisition of
the outstanding common shares of TransAlta
Renewables for consideration of C$1.4 billion
Exclusive Financial Advisor on the sale of 20%•
of Corient (CI Financial’s U.S. WealthManagement business) for US$1.0 billion(implying US$5 billion Enterprise Value), thelargest private transaction in the wealthmanagement sector in 2023

Further grow in areas of advisory and origination,
through additional investments and partnerships
across Corporate & Investment Banking and
Global Markets

Expanded our digital research platform into next
generation applications, utilizing alternative data
Launched Aiden® Arrival, the second algorithm on
RBC’s AI-based electronic trading platform, in
Europe. RBC Capital Markets was ranked 2nd
overall among North American and European
banks at incorporating and advancing AI
technology by Evident AI Index in February 2023

Generate differentiated insights and thought
leadership leveraging Elements, RBC’s alternative
data and analytics platform

Integrated Treasury Services and Transaction
Banking into Capital Markets, driving stronger
strategic alignment across the business
Further embedded a culture of productivity andefficiency to enable accelerated investments

Strategically invest across talent, technology andcapital, prioritizing areas of greatest impact

Prioritized investments in technology andfunctional infrastructure in alignment withbusiness strategy
Shifted investment mix more towards client
digitization and new product capabilities

Simplify functional processes to improve clientand employee experience

Invested in talent across internal promotions andexternal senior hires, and increased internal
mobility
Progressed diverse representation by embedding
our Diversity & Inclusion (D&I) strategy moredeeply into the business
Recognized as the Best FX Bank for Diversity as
part of the Euromoney’s 2023 FX Awards

Elevate leadership capabilities to grow anddevelop talentContinue to advance ESG initiatives, including
supporting clients in achieving their energy
transition goals

Advance the client digital experience and broaden
electronic execution capabilities

Align business and functional strategies toimprove execution on an end-to-end basis to build
scale and maximize return on investment

Continue to drive cross-platform and geographic
collaboration across businesses and asset classes

Advance diverse representation and continue tostrengthen our culture of inclusion and belonging
Drive a high-performance culture that empowers
and enables people to deliver on our ambitious
goals

OutlookIn fiscal 2024, the outlook remains uncertain and financial market volatility is expected to persist. Amidst these market dynamics,
we expect Global Investment Banking fee pools to return to historical levels with some moderation in Global Markets industry
revenue pools. We will continue to pursue market share growth in both our Corporate & Investment Banking and Global Markets
businesses. In Investment Banking, we will continue to focus on targeted sectors and investment in talent, with an emphasis on
advisory products. In Global Markets, our focus remains on delivering robust results through continued resource optimization,
acceleration of cross-selling activities, further deployment of electronic and digital capabilities, and building on our strong risk
management practices. In Corporate Banking, following higher levels of balance sheet deployment in support of client financing
demands in fiscal 2023, we will continue to pursue a disciplined growth approach to deepen relationships with lending clients todrive growth in our non-lending businesses. This strategy will continue to be underpinned by strong credit risk management
practices, optimization of our financial resources and supporting our clients in the execution of their strategies.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.

54

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Capital Markets

Table 34
2023

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

Net interest income (2)Non-interest income (2)Total revenue (2)PCL on performing assets
PCL on impaired assets
PCL
Non-interest expense
Income before income taxes
Net income

$

3,379
7,672
11,051
125
436
561
6,509
3,981
4,139

$

Revenue by businessCorporate & Investment Banking
Global Markets
Other

$

Key ratios
ROE
Selected balance sheet information
Average total assets
Average trading securities
Average loans and acceptances, net
Average deposits$

2022 (1)

$

4,944
5,005
9,949
(32)
19
(13)
5,816
4,146
3,368

5,375 $
6,013
(337)

4,765
5,619
(435)

14.6%

12.1%

1,107,100
160,900
144,900
291,700$$

1,056,100
139,400
131,400
284,800

Other information
Number of employees (FTE)

7,253

7,017

Credit information
PCL on impaired loans as a % of average net loans and acceptances

0.30%

0.01%

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items
2023 vs. 2022

(Millions of Canadian dollars, except percentage amounts)

Increase (decrease):
Total revenue
PCL
Non-interest expense
Net income$

Percentage change in average U.S. dollar equivalent of C$1.00
Percentage change in average British pound equivalent of C$1.00
Percentage change in average Euro equivalent of C$1.00
(1)
(2)

374
19
186
165
(4)%
(3)%
(5)%

Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of
Canada section.
The teb adjustment for 2023 was $559 million (2022 – $572 million). For further discussion, refer to the How we measure and report our business segments section.

Revenue by region (Millions of Canadian dollars)
12,00010,500
9,000
7,500
6,000
4,500
3,000
1,500
0
2023

2022

Australia, Asia & other regions

U.K. & Europe

U.S.

CanadaFinancial performance
2023 vs. 2022
Net income increased $771 million or 23% from last year, mainly due to lower taxes reflecting changes in earnings mix, higher
revenue in Corporate & Investment Banking and Global Markets and the impact of foreign exchange translation. These factors
were partially offset by higher PCL, higher compensation and ongoing technology investments.
Total revenue increased $1,102 million or 11%, mainly due to higher fixed income trading across all regions. The prior year
also included the impact of loan underwriting markdowns. The impact of foreign exchange translation also contributed to theincrease. These factors were partially offset by lower equity trading revenue across all regions.
PCL was $561 million compared to $(13) million last year, mainly reflecting higher provisions on impaired loans across most
sectors, resulting in a 29 bps increase in the PCL on impaired loans ratio. Provisions taken on performing loans in the current
year driven by unfavourable changes to our macroeconomic forecast and credit quality outlook also contributed to the increase.
Non-interest expense increased $693 million or 12%, mainly due to higher compensation on increased results, the impact offoreign exchange translation and ongoing technology investments.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

55

Business line review
Corporate & Investment Banking
Corporate & Investment Banking comprises our corporate lending, municipal finance, loan syndication, debt and equity
origination, M&A advisory services and transaction banking services. For debt and equity origination, revenue is allocatedbetween Corporate & Investment Banking and Global Markets based on the contribution of each group in accordance with anestablished agreement.
Financial performance
Corporate & Investment Banking revenue of $5,375 million increased $610 million or 13% from last year.
Investment Banking revenue increased $279 million or 16%, as the prior year included the impact of loan underwriting
markdowns, partially offset by lower loan syndication activity across most regions this year.
Lending and other revenue increased $331 million or 11%, primarily due to improved margins in transaction banking andhigher securitization financing revenue.
Selected highlights

Breakdown of total revenue (Millions of Canadian dollars)

Table 35
2023

(Millions of Canadian dollars)

2022 (1)6,000

Total revenue (2)$ 5,375 $ 4,765
Breakdown of revenue (2)Investment banking
2,065
1,786
3,310
2,979
Lending and other (3)Other information
Average assets
125,000
109,000
Average loans and acceptances, net
117,000
101,500
(1)

(2)

(3)

5,000
4,000
3,000
2,000
1,000
0
2023

Amounts have been revised from those previously presented to conform to
our new basis of segment presentation. For further details, refer to the About
Royal Bank of Canada section.
The teb adjustment for the year ended October 31, 2023 was $135 million(October 31, 2022 – $39 million). For further discussion, refer to the How wemeasure and report our business segments section.
Comprises our corporate lending, client securitization, and global credit
businesses.

Investment banking

2022

Lending and other

Global Markets
Global Markets comprises our sales and trading businesses including fixed income, foreign exchange, commodities, and equities,
as well as our repo and secured financing products.
Financial performance
Global Markets revenue of $6,013 million increased $394 million or 7% from last year.
Revenue in our Fixed income, currencies and commodities business increased $654 million or 24%, largely driven by higher
fixed income trading in the U.S. and Europe.
Revenue in our Equities business decreased $149 million or 10%, primarily due to lower equity trading revenue primarily in
the U.S., partially offset by the impact of foreign exchange translation.
Revenue in our Treasury services & funding business decreased $111 million or 8%, mainly due to lower securities lending
revenue.
Selected highlights

Table 36

(Millions of Canadian dollars)

Total revenue (2)Breakdown of revenue (2)Fixed income, currencies
and commodities
Equities
Treasury services and funding (3), (4)Other information
Average assets
(1)

(2)

(3)

(4)

56

$

2023

2022 (1)6,013 $

5,619

Breakdown of total revenue (Millions of Canadian dollars)
7,000
6,000
5,000

3,335
1,309
1,369

2,681
1,458
1,480

968,000

930,000

4,000
3,000
2,000

Amounts have been revised from those previously presented to conform to
our new basis of segment presentation. For further details, refer to the About
Royal Bank of Canada section.
The teb adjustment for the year ended October 31, 2023 was $424 million(October 31, 2022 – $533 million). For further discussion, refer to the How wemeasure and report our business segments section.
Effective the first quarter of 2023, the Treasury Services business moved to theCapital Markets segment, combining with our Repo and secured financing
business. For further details, refer to the About Royal Bank of Canada section.
Comprises our secured funding businesses for internal businesses andexternal clients.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

1,000
0
2023

Treasury services
and funding

2022

Global equities

Fixed income, currencies
and commodities

OtherOther includes our legacy portfolio, which mainly consists of our U.S. commercial mortgage-backed securities (MBS), bankowned life insurance (BOLI) derivative contracts and structured rates in Asia.
Financial performance
Other revenue increased $98 million or 22% from last year, mainly reflecting changes in the fair value of hedges related to ourshare-based compensation plans, which was largely offset in non-interest expense, as well as the impact of fair value changes in
our legacy U.S. portfolios.
Corporate Support
Corporate Support consists of Technology & Operations, which provides the technological and operational foundation required
to effectively deliver products and services to our clients, Functions, which includes our finance, human resources, risk
management, internal audit and other functional groups, as well as our Corporate Treasury function. Reported results for
Corporate Support mainly reflect enterprise level activities which are not allocated to business segments. For further details,
refer to the How we measure and report our business segments section.
Corporate Support

Table 37
2023

(Millions of Canadian dollars)

Net interest income (loss) (1)Non-interest income (loss) (1), (2)Total revenue (1), (2)PCL
Non-interest expense (2)Income (loss) before income taxes (1)Income taxes (recoveries) (1)Net income (loss)(1)(2)$ 1,181(1,442)
(261)
–
668
(929)
(160)
$ (769)

2022
$

$

(132)
(728)
(860)
1
(247)
(614)
(616)
2

Teb adjusted.
Revenue for the year ended October 31, 2023, included gains of $111 million (October 31, 2022 – losses of $363 million) on economic hedges of our U.S. Wealth Management(including City National) share-based compensation plans, and non-interest expense included $109 million (October 31, 2022 – $(289) million) of share-based
compensation expense driven by changes in the fair value of liabilities relating to our U.S. Wealth Management (including City National) share-based compensationplans.

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period
analysis is not relevant.
Total revenue and Income taxes (recoveries) in each period in Corporate Support include the deduction of the teb adjustments
related to the gross-up of income from Canadian taxable corporate dividends and the U.S. tax credit investment businessrecorded in Capital Markets. The amount deducted from revenue was offset by an equivalent increase in Income taxes(recoveries).
The teb amount for the year ended October 31, 2023 was $559 million and was $572 million last year.
The following identifies the material items, other than the teb impacts noted previously, affecting the reported results in each
year.
2023
Net loss was $769 million, primarily due to the impact of the CRD and other tax related adjustments of $1,050 million, as well as
the after-tax impact of transaction and integration costs of $302 million relating to the planned acquisition of HSBC Canada, bothof which are specified items. These factors were partially offset by a specified item relating to certain deferred tax adjustments of$578 million. In addition, the net loss includes an unfavourable impact from residual unallocated items offset by a favourable
impact from tax-related items.
For further details on specified items, refer to the Key performance and non-GAAP measures section.
2022
Net income was $2 million. Net favourable tax adjustments and asset/liability management activities were offset by residual
unallocated items.
Quarterly financial information
Fourth quarter performanceQ4 2023 vs. Q4 2022
Fourth quarter net income of $4,131 million was up $249 million or 6%. Diluted EPS of $2.90 was up $0.16 and ROE of 15.2% was
down 40 bps. Our CET1 ratio of 14.5% was up 190 bps from a year ago. Our earnings were up primarily due to a specified item
relating to certain deferred tax adjustments, as well as a favourable impact from tax-related items, which are both reported in
Corporate Support. Higher earnings in Capital Markets and Insurance also contributed to the increased results, which werepartially offset by lower earnings in Wealth Management and Personal & Commercial Banking.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

57

Total revenue increased $459 million or 4%, largely due to higher average fee-based client assets reflecting net sales and theinclusion of RBC Brewin Dolphin and higher spreads and average volume growth in Canadian Banking. A favourable impact fromtax-related items also contributed to the increase. These factors were partially offset by the impact of economic hedges,
impairment losses on our interest in an associated company in Wealth Management, and lower equity trading revenue in CapitalMarkets.
Total PCL of $720 million increased $339 million or 89%, primarily reflecting higher provisions in Personal & Commercial
Banking and Capital Markets. The PCL on loans ratio of 34 bps increased 16 bps.
PBCAE decreased $24 million or 21%, primarily reflecting the change in fair value of investments backing policyholder
liabilities, improved claims experience and benefits from favourable reinsurance contract renegotiations. These factors werepartially offset by lower favourable investment-related experience, business growth including group annuity sales and lower
favourable annual actuarial assumption updates.
Non-interest expense increased $934 million or 13%, mainly attributable to higher staff costs, including severance,transaction and integration costs relating to the planned acquisition of HSBC Canada and the impact of legal provisions in our
Wealth Management segment. The inclusion of RBC Brewin Dolphin and related costs and higher professional fees, largely
reflecting continued investments in the operational infrastructure of City National, also contributed to the increase. These
factors were partially offset by reduced expenses following the partial sale of RBC Investor Services operations.
Income tax expense decreased $1,039 million, primarily due to the impact of a specified item relating to certain deferred tax
adjustments, changes in earnings mix and lower income before income taxes. The effective income tax rate of (1.5)% decreased
21.6% from last year, primarily due to the impact of certain deferred tax adjustments as noted above and changes in earningsmix.
Q4 2023 vs. Q3 2023
Net income of $4,131 million was up $259 million or 7% compared to last quarter, primarily due to a specified item relating tocertain deferred tax adjustments, as well as a favourable impact from tax-related items, both in Corporate Support. These factors
were partially offset by a specified item relating to impairment losses on our interest in an associated company, as well as theimpact of legal provisions, both in Wealth Management.
Quarterly results and trend analysis
Our quarterly results are impacted by a number of trends and recurring factors, which include seasonality of certain businesses,
general economic and market conditions, and fluctuations in the Canadian dollar relative to other currencies. The following tablesummarizes our results for the last eight quarters (the period):
Quarterly results (1)Table 38
2023

(Millions of Canadian dollars,
except per share and percentage amounts)

2022

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

$ 5,718 $
4,188
589
2,564
(33)

5,563 $
4,402
1,848
2,679
(3)

5,298 $
4,394
1,347
2,662
(181)

5,541 $
4,560
1,891
3,146
(44)

5,419 $
4,287
644
2,505
(288)

5,182 $
3,997
1,233
1,889
(169)

4,739 $
3,973
234
2,531
(257)

4,803
3,986
1,399
3,024
(146)

Total revenue
PCL
PBCAE
Non-interest expense

13,026
720
92
8,143

14,489
616
1,379
7,861

13,520
600
1,006
7,494

15,094
532
1,545
7,675

12,567
381
116
7,209

12,132
340
850
6,386

11,220
(342)
(180)
6,434

13,066
105
997
6,580

Income before income taxes
Income taxes

4,071
(60)

4,633
761

4,420
771

5,342
2,128

4,861
979

4,556
979

5,308
1,055

5,384
1,289

Personal & Commercial Banking
Wealth Management (2)Insurance
Capital Markets (2), (3)Corporate Support (3)Net income
EPS – basic– diluted
Effective income tax rate
Period average US$ equivalentof C$1.00
(1)
(2)
(3)

58

$ 4,131

$

3,872

$

3,649

$

3,214

$

3,882

$

3,577

$

4,253

$

4,095

$

$

2.74
2.73

$

2.58
2.58

$

2.29
2.29

$

2.75
2.74

$

2.52
2.51

$

2.97
2.96

$

2.84
2.84

2.90
2.90
(1.5)%$ 0.732

16.4%
$

0.750

17.4%
$

0.737

39.8%
$

0.745

20.1%
$

0.739

21.5%
$

0.783

19.9%
$

0.789

23.9%
$

0.787

Fluctuations in the Canadian dollar relative to other foreign currencies have affected our consolidated results over the period.
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of
Canada section.
Teb adjusted. For further discussion, refer to the How we measure and report our business segments section.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Seasonality
Seasonal factors may impact our results in certain quarters. The first quarter has historically been stronger for our CapitalMarkets businesses. The second quarter has fewer days than the other quarters, which generally results in a decrease in net
interest income and certain expense items. The third and fourth quarters include the summer months which generally results inlower client activity and may negatively impact the results of our Capital Markets trading business.
Trend analysis
Earnings over the period have been impacted by the factors noted below.
Personal & Commercial Banking revenue has benefitted from solid volume growth in loans and deposits over the period. NIM
has been favourably impacted over the majority of the period by the higher interest rate environment. NIM has been adversely
impacted by a shift in deposit mix in fiscal 2023.
Wealth Management revenue has generally benefitted from growth in average fee-based client assets, which was impacted
by market conditions, and volume growth in loans over the period. The higher interest rate environment also favourably
impacted revenue over the majority of the period. The revenue of RBC Brewin Dolphin has been included since the acquisition
closed on September 27, 2022. On July 3, 2023, we completed the sale of the European asset servicing activities of RBC Investor
Services and its associated Malaysian centre of excellence. The fourth quarter of 2023 reflected impairment losses on ourinterest in an associated company.
Insurance revenue has fluctuated over the period, primarily due to the impact of changes in the fair value of investmentsbacking policyholder liabilities as well as the timing of group annuity sales, both of which are largely offset in PBCAE. Groupannuity sales can vary significantly by quarter and are generally higher in the first half of the fiscal year.
Capital Markets revenue is influenced, to a large extent, by market conditions that impact client activity. In the second halfof fiscal 2022, there was a decline in global investment banking fee pools amidst challenging market conditions, including theimpact of loan underwriting markdowns in the third quarter. In 2023, we saw strong client activity, driving higher sales & trading
revenues particularly in the first quarter.
PCL is comprised of provisions taken on performing assets and provisions taken on impaired assets. PCL on performing
assets fluctuated over the period as it is impacted by changes in credit quality, macroeconomic conditions, and exposures.
Throughout the first half of 2022, we saw improvements in our macroeconomic forecast and credit quality outlook, as the
economic impact from the COVID-19 pandemic eased in most regions, resulting in releases of provisions on performing assets.
We have seen provisions on performing assets over the remainder of the period generally reflecting unfavourable changes incredit quality and our macroeconomic forecast. PCL on impaired assets was low during the early part of the period, but hastrended upwards over the remainder of the period.
PBCAE has fluctuated over the period reflecting changes in the fair value of investments backing policyholder liabilities,
which is impacted by changes in market conditions, as well as group annuity sales, both of which are largely offset in revenue.
PBCAE has also fluctuated due to the impact of investment-related experience and claims costs over the period. Actuarial
adjustments, which generally occur in the fourth quarter of each year, also impact PBCAE.
Non-interest expense has been impacted by fluctuations in variable compensation over the period, commensurate withfluctuations in revenue and earnings. Changes in the fair value of our U.S. share-based compensation plans, which are largely
offset in revenue, have also contributed to fluctuations over the period and are impacted by market conditions. While wecontinue to focus on efficiency management activities, expenses over the period also reflect investments in staff and technology.
Non-interest expenses of RBC Brewin Dolphin have been included since the acquisition closed on September 27, 2022. Beginningin fiscal 2023, expenses have also included transaction and integration costs relating to the planned acquisition of HSBC Canada.
Our effective income tax rate has fluctuated over the period, mostly due to varying levels of tax adjustments and changes inearnings mix. The second and fourth quarters of 2022 reflected the impact of net favourable tax adjustments and an increase inincome from lower tax rate jurisdictions, respectively. The first quarter of 2023 reflects the impact of the CRD and other tax
related adjustments. The fourth quarter of 2023 reflects the recognition of deferred tax assets relating to realized losses in City
National associated with the intercompany sale of certain debt securities.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

59

Financial condition
Condensed balance sheets
Table 392023

As at October 31 (Millions of Canadian dollars)

AssetsCash and due from banks
Interest-bearing deposits with banks
Securities, net of applicable allowance (1)Assets purchased under reverse repurchase agreements and securities borrowed
Loans
RetailWholesale
Allowance for loan losses
Other – Derivatives– Other (2)$61,98971,086
409,730
340,191

2022$

72,397108,011318,223
317,845569,951
287,826(5,004)142,450
126,773

549,751
273,967(3,753)
154,439
126,339$2,004,992$ 1,917,219$

1,231,687
142,629
501,530
11,386$ 1,208,814
153,491
436,714
10,025

1,887,232

1,809,044

Equity attributable to shareholders
Non-controlling interests

117,661
99

108,064111

Total equity

117,760

108,175

2,004,992$ 1,917,219

Total assets
Liabilities
Deposits
Other – Derivatives– Other (2)Subordinated debentures
Total liabilities

Total liabilities and equity
(1)
(2)

$

Securities are comprised of trading and investment securities.
Other – Other assets and liabilities include Segregated fund net assets and liabilities, respectively.

2023 vs. 2022
Total assets increased $88 billion or 5% from last year. Foreign exchange translation increased total assets by $14 billion.
Cash and due from banks was down $10 billion or 14%, mainly due to lower deposits with central banks, reflecting our shortterm cash management activities.
Interest-bearing deposits with banks decreased $37 billion or 34%, largely due to the impact of the partial sale of RBC
Investor Services operations. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial Statements. Lower
deposits with central banks also contributed to the decrease, reflecting our cash and liquidity management activities.
Securities, net of applicable allowance, were up $92 billion or 29%, largely due to higher government debt securities mainlyreflecting cash management activities and business activities. Higher equity trading and corporate debt securities also
contributed to the increase.
Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $22 billion or
7%, largely due to increased client demand. The impact of foreign exchange translation also contributed to the increase.
Loans (net of Allowance for loan losses) were up $33 billion or 4%, largely due to volume growth in residential mortgages
and wholesale loans. The impact of foreign exchange translation also contributed to the increase.
Derivative assets were down $12 billion or 8%, primarily attributable to the impact of foreign exchange translation.
Total liabilities increased $78 billion or 4% from last year. Foreign exchange translation increased total liabilities by $14 billion.
Deposits increased $23 billion or 2% due to an increase in term deposits attributable to higher interest rates and the impactof foreign exchange translation. These factors were partially offset by a decrease in demand and notice deposits and the impactof the partial sale of RBC Investor Services operations.
Derivative liabilities were down $11 billion or 7%, primarily attributable to the impact of foreign exchange translation.
Other liabilities increased $65 billion or 15%, primarily due to higher obligations related to repurchase agreements (repos)
reflecting increased client demand.
Total equity increased $10 billion or 9%, primarily reflecting earnings, net of dividends, and the issuance of common shares.
Off-balance sheet arrangements
In the normal course of business, we engage in a variety of financial transactions that, for accounting purposes, are not recordedon our Consolidated Balance Sheets. Off-balance sheet transactions are generally undertaken for risk, capital and funding
management purposes which benefit us and our clients. These include transactions with structured entities and may also include
the issuance of guarantees. These transactions give rise to, among other risks, varying degrees of market, credit, liquidity andfunding risk, which are discussed in the Risk management section.
We use structured entities to securitize our financial assets as well as assist our clients in securitizing their financial assets.
These entities are not operating entities, typically have no employees, and may or may not be recorded on our Consolidated
Balance Sheets.

60

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

In the normal course of business, we engage in a variety of financial transactions that may qualify for derecognition. We
apply the derecognition rules to determine whether we have transferred substantially all the risks and rewards or control
associated with the financial assets to a third party. If the transaction meets specific criteria, it may qualify for full or partial
derecognition from our Consolidated Balance Sheets.
Securitizations of our financial assets
We periodically securitize our credit card receivables and residential and commercial mortgage loans primarily to diversify ourfunding sources, enhance our liquidity position and for capital purposes. We also securitize residential and commercial
mortgage loans as part of our sales and trading activities.
We securitize our credit card receivables, on a revolving basis, through a consolidated structured entity. We securitize single
and multiple-family residential mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS) program.
The majority of our securitization activities are recorded on our Consolidated Balance Sheets as we do not meet thederecognition criteria. During 2023 and 2022, we did not derecognize any mortgages securitized through the NHA MBS program.
For further details, refer to Note 7 and Note 8 of our 2023 Annual Consolidated Financial Statements.
We also periodically securitize commercial mortgage loans by selling them in collateral pools, which meet certain
diversification, leverage and debt coverage criteria, to structured entities, one of which is sponsored by us. Securitizedcommercial mortgage loans are derecognized from our Consolidated Balance Sheets as we have transferred substantially all of
the risks and rewards of ownership of the securitized assets. During the year ended October 31, 2023, we did not securitize any
commercial mortgages (October 31, 2022 – $450 million). Our continuing involvement with the transferred assets is limited toservicing certain of the underlying commercial mortgages sold. As at October 31, 2023, there was $2 billion of commercial
mortgages outstanding that we continue to service related to these securitization activities (October 31, 2022 – $2 billion).
Involvement with unconsolidated structured entities
In the normal course of business, we engage in a variety of financial transactions with structured entities to support ourcustomers’ financing and investing needs, including securitization of our clients’ financial assets, creation of investment
products, and other types of structured financing.
We have the ability to use credit mitigation tools such as third-party guarantees, credit default swaps, and collateral tomitigate risks assumed through securitization and re-securitization exposures. The process in place to monitor the credit qualityof our securitization and re-securitization exposures involves, among other things, reviewing the performance data of theunderlying assets. We affirm our ratings each quarter and formally confirm or assign a new rating at least annually. For further
details on our activities to manage risks, refer to the Risk management section.
Below is a description of our activities with respect to certain significant unconsolidated structured entities. For a complete
discussion of our interests in consolidated and unconsolidated structured entities, refer to Note 8 of our 2023 Annual
Consolidated Financial Statements.

Multi-seller conduits
We administer multi-seller conduits which are used primarily for the securitization of our clients’ financial assets. Our clientsprimarily use our multi-seller conduits to diversify their financing sources and to reduce funding costs by leveraging the value ofhigh-quality collateral. The conduits offer us a favourable revenue stream and risk-adjusted return.
We provide services such as transaction structuring, administration, backstop liquidity facilities and partial credit
enhancements to the multi-seller conduits. Revenue for all such services amounted to $387 million during the year
(October 31, 2022 – $296 million).
Our total commitment to the conduits in the form of backstop liquidity and credit enhancement facilities is shown below. The
total committed amount of these facilities exceeds the total amount of the maximum assets that may have to be purchased by
the conduits under the purchase agreements. As a result, the maximum exposure to loss attributable to our backstop liquidity
and credit enhancement facilities is less than the total committed amounts of these facilities.
Liquidity and credit enhancement facilities

Table 402023

As at October 31 (Millions of Canadian dollars)

Notional ofcommitted
amounts (1)Allocable
notional
amounts

Backstop liquidity facilities
Credit enhancement facilities (3)$ 54,713
3,244

Total

$ 57,957

(1)
(2)
(3)

2022
Maximum
exposure
to loss (2)Notional ofcommitted
amounts (1)Allocable
notional
amounts

Maximum
exposure
to loss (2)$ 51,469
3,244$ 51,469 $ 48,235
3,244
2,974

$ 45,261
2,974$ 45,261
2,974$ 54,713$ 54,713 $ 51,209$ 48,235$ 48,235

Based on total committed financing limit.
Not presented in the table above are derivative assets with a fair value of $2 million (October 31, 2022 – $25 million) which are a component of our total maximum
exposure to loss from our interests in the multi-seller conduits. Refer to Note 8 of our 2023 Annual Consolidated Financial Statements for more details.
Includes $18 million (October 31, 2022 – $14 million) of Financial standby letters of credit.

As at October 31, 2023, the notional amount of backstop liquidity facilities we provide increased $6 billion or 13% from last year,
primarily due to an increase in outstanding securitized assets of the multi-seller conduits. The notional amount of partial credit
enhancement facilities we provide increased $270 million or 9% from last year, primarily due to higher client usage of themulti-seller conduits.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

61

Maximum exposure to loss by client type

Table 412023

As at October 31 (Millions of dollars)

US$

2022
C$

Total C$US$C$

Total C$

3,967
–
719
580
243
213
428
1,785
139
–
153

$ 18,351
4,359
7,441
1,960
3,365
1,283
624
1,785
2,882
3,144
3,041

Outstanding securitized assets
Auto and truck loans and leases
Consumer loans
Credit cards
Dealer floor plan receivables
Equipment receivables
Fleet finance receivables
Commercial loans (1)Residential mortgages
Student loans
Trade receivables
Transportation finance$ 11,197
4,170
4,226
1,075
2,086
1,835
542
–
2,312
2,954
2,752

$

3,874
–
510
592
965
190
530
1,785
141
–
153

$ 19,402 $ 10,553
5,783
3,198
6,371
4,932
2,083
1,012
3,858
2,291
2,735
785
1,282
143
1,785
–
3,348
2,013
4,097
2,306
3,969
2,119

Total

$ 33,149$

8,740$ 54,713 $ 29,352

$

8,227

$ 48,235

Canadian equivalent$ 45,973$

8,740$ 54,713 $ 40,007

$

8,227

$ 48,235(1)$

Exposures previously classified as Insurance premiums are now classified as Commercial loans, reflecting an alignment with rating agency classification and reporting.

Our overall exposure increased $6 billion or 13% compared to last year, primarily due to an increase in the outstanding
securitized assets of the multi-seller conduits. All of the multi-seller conduits transactions were internally rated A or above. Alltransactions funded by the unconsolidated multi-seller conduits are internally rated using a rating system as outlined in theinternal ratings map in the credit risk section.
Multiple independent debt rating agencies review all of the transactions in the multi-seller conduits. Transactions financedin the U.S. multi-seller conduits are reviewed by Moody’s Investors Service (Moody’s‡), Standard & Poor’s (S&P‡) and Fitch
Ratings (Fitch‡). Transactions in two of the Canadian multi-seller conduits are reviewed by DBRS Morningstar (DBRS‡) andMoody’s while one of the Canadian multi-seller conduits is also reviewed by S&P. Each applicable rating agency also reviews
ongoing transaction performance on a monthly basis and may publish reports detailing portfolio and program information
related to the conduits.
As at October 31, 2023, the total asset-backed commercial paper (ABCP) issued by the conduits amounted to $37 billion, an
increase of $4 billion or 12% from last year, primarily due to higher client usage. The rating agencies that rate the ABCP rated
100% (October 31, 2022 – 100%) of the total amount issued within the top ratings category.

Structured finance
We provide liquidity facilities to certain municipal bond tender option bond trusts in which we have an interest but do notconsolidate because the residual certificates issued by the tender option bond trusts are held by third parties. As at
October 31, 2023, our maximum exposure to loss from these unconsolidated municipal bond tender option bond trusts was$3 billion (October 31, 2022 – $3 billion).
We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquireloans and issue term collateralized loan obligations (CLO). Subordinated financing is provided during the warehouse phase byeither the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs
losses prior to ourselves as the senior lender. A portion of the proceeds from the sale of the term CLO is used to fully repay thesenior warehouse financing that we provide. As at October 31, 2023, our maximum exposure to loss associated with theoutstanding senior warehouse financing facilities was $796 million (October 31, 2022 – $640 million). The increase in our
maximum exposure to loss from last year was driven by the addition of new financing facilities partially offset by the repaymentof existing financing facilities.
We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.
Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as
the first loss tranche which absorb losses prior to ourselves as the senior lender. These facilities tend to be longer in term thanthe CLO warehouse facilities and benefit from credit enhancement designed to cover a multiple of historical losses. As at
October 31, 2023, our maximum exposure to loss associated with the outstanding senior financing facilities was $6 billion(October 31, 2022 – $5 billion). The increase in our maximum exposure to loss from last year was driven by the addition of new
financing facilities partially offset by the repayment of existing financing facilities.
Non-RBC managed investment funds
We invest in hedge funds primarily to provide clients with desired exposures to reference funds. As we make investments in thereference funds, exposures to the funds are simultaneously transferred to clients through derivative transactions. Our maximum
exposure to loss in the reference funds is limited to our investments in the funds. As at October 31, 2023, our maximum exposure
to loss was $2 billion (October 31, 2022 – $3 billion). The decrease in our maximum exposure to loss from last year was driven byredemptions in third-party investment funds.
We also provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate preferredshares and invest in portfolios of tax-exempt bonds. As at October 31, 2023, our maximum exposure to loss on these funds was$632 million (October 31, 2022 – $667 million). The decrease in our maximum exposure to loss from last year was driven byredemption of capital by third-party investors of the funds.
Third-party securitization vehicles
We hold interests in certain unconsolidated third-party securitization vehicles, which are structured entities. We, as well as otherfinancial institutions, are obligated to provide funding to these entities up to our maximum commitment level and are exposed tocredit losses on the underlying assets after various credit enhancements. As at October 31, 2023, our maximum exposure to loss

62

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

in these entities was $15 billion (October 31, 2022 – $14 billion). The increase in our maximum exposure to loss compared to lastyear reflects an increase in client activity with third-party securitization vehicles. Interest and non-interest income earned in
respect of these investments was $528 million (October 31, 2022 – $186 million).

Other
Other unconsolidated structured entities include managed investment funds, arrangements to pass credit risk to third parties,
credit investment products and tax credit funds. Refer to Note 8 of our 2023 Annual Consolidated Financial Statements formore details regarding our other unconsolidated structured entities.
Guarantees, retail and commercial commitments
We provide our clients with guarantees and commitments that expose us to liquidity and funding risks. Our maximum potential
amount of future payments in relation to our commitments and guarantee products as at October 31, 2023 amounted to$496 billion compared to $453 billion last year. The increase compared to last year was primarily driven by growth in othercommitments to extend credit, sponsored member guarantees, backstop liquidity facilities and financial standby letters of credit.
Refer to Liquidity and funding risk and Note 24 of our 2023 Annual Consolidated Financial Statements for details regarding ourguarantees and commitments.
Risk management
We are in the business of managing the risks inherent to the financial services industry as we aim to create maximum value forour shareholders, clients, employees and communities. The ability to manage risk is a core competency of the bank, and is
supported by our risk-aware culture and risk management approach. Our view of risks is dynamic, and reflects the pace ofchange in the financial services industry.
Top and emerging risks
An important component of our risk management approach is to ensure that top and emerging risks, as they evolve, areidentified, managed and incorporated into our existing risk management assessment, measurement, monitoring and escalation
processes and addressed in our risk frameworks and policies. These practices are intended to ensure a forward-looking risk
assessment is maintained by management in the course of business development and as part of the execution of ongoing risk
oversight responsibilities. Top and emerging risks are discussed by senior management and the Board on a regular basis.
We have developed supplementary internal guidance to support enterprise-wide identification and assessment of allmaterial risks, including those that are not readily apparent. Top and emerging risks encompass those that could materially
impact our financial results, financial and operational resilience, reputation, business model or strategy, as well as those that
may materially impact us as the risks evolve. The following represents our top and emerging risks:
Top & emerging risks

Description

Business and economic
conditions

Our financial results are affected to varying degrees by the general business and economic conditions in
the geographic regions in which we operate. These conditions may include factors such as: economic
growth or contraction trends, consumer saving and spending habits; consumer and corporate borrowing
and repayment patterns; unemployment rates; the differing economic trajectories among nations acrossthe globe; global tensions and geopolitical uncertainty; the level of business investment and overallbusiness sentiment; trade; the emergence of a new outbreak of a pandemic or other health crisis; thelevel of government spending, as well as fiscal and monetary policy; the level of activity and volatility of
the financial markets; disruptions to energy and other commodity markets; competitiveness; supply
chain challenges and labour shortages; the evolution of elevated inflationary pressures; and possible
stagflation or deflation. Moreover, interest rate changes and actions taken by central banks to manage
inflation or the broader economy have implications for us. Our financial results are sensitive to changes
in interest rates, as described in the Systemic risk section.
For example, a slowdown in economic growth or an economic downturn could adversely impact
employment rates and household incomes, consumer spending, housing prices, corporate earnings andbusiness investment, and could adversely affect our business, including, but not limited to, the demandfor our loan and other products, and result in lower earnings, and higher credit losses. In addition torisks arising from monetary policy tightening, risks are also emerging around how governments may
continue to seek to recoup pandemic-related support, or any new support provided to deal withemerging economic challenges. This may include, for example, changes to tax policy to address fiscal
capacity concerns and to balance budgets in the future.
There are also emerging risks related to wealth and income inequality, as well as changing demographics
and immigration, which could impact the labour market, the housing market, inflation, demand andconsumer trends, and potentially have broader societal and government policy implications.

Canadian housing andhousehold indebtedness

Canadian housing and household indebtedness risks remain heightened in the current interest rateenvironment. Concerns around elevated levels of Canadian household debt, which accelerated during
the COVID-19 pandemic, could escalate if interest rates remain higher for longer, if the cost of living
increases further, or if job losses increase significantly, potentially resulting in, among other things,
higher credit losses. Moreover, continued interest rate increases or slowing economic growth could
adversely impact housing market activity and housing prices, which could push loan-to-value (LTV)
ratios higher and further increase credit losses.
While real estate rental activity has rebounded in certain markets, challenging affordability conditions,
supply constraints, elevated borrowing and construction costs may have an adverse impact on future
real estate investment and demand.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

63

Top & emerging risks

Description

Information technology (IT) risk, cyber risks and third-party risk remain top risks, not only for the
Information technology,
cyber and third-party risks financial services sector, but for other industries worldwide. Geopolitical tensions have increased therisk of nation state actors attacking critical infrastructure, including banks and critical third parties(e.g., utilities, telecom providers, etc.). We continue to be subject to the heightened inherent risk ofcyberattacks, data breaches, cyber extortion and similar compromises, due to: (i) the size, scale andglobal nature of our operations; (ii) our heavy reliance on the internet to conduct day-to-day businessactivities; (iii) our intricate technological infrastructure; and (iv) our reliance on third-party service
providers. Our potential exposure to these risks increases as we continue to partner with third-party
service providers and adopt new business models and technologies (e.g., cloud computing, Artificial
Intelligence (AI) and machine learning). Threat actors gravitate towards vulnerabilities in an ecosystem,and the weakest link in the supply chain can be a supplier or third-party service provider that may nothave sufficiently robust controls. Other key drivers of third-party risk include global economic pressuresrelated to inflation, and concentration of suppliers and fourth parties (i.e. vendors of our third party
providers) within the broader supply chain. Third-party providers critical to our operations are actively
monitored for impacts on their ability to deliver services to us, including impacts resulting from fourthparties.
Ransomware threats are growing in sophistication and being used to launch major supply chain attacks.
Additionally, clients’ use of personal devices can create further avenues for potential cyber-related
incidents, as the bank has little or no control over the safety of these devices. Resulting implications
could include business interruptions, client service disruptions, financial loss, theft of intellectual
property and confidential information, litigation, enhanced regulatory attention and penalties, as well as
reputational damage. Furthermore, the adoption of emerging technologies, such as cloud computing, AI,
including generative AI, and robotics, call for continued focus and investment to manage risks
effectively. For more details on how we are managing these risks, refer to the Operational risk section.
Geopolitical uncertainty

In 2023, the Russia-Ukraine conflict continued to produce turmoil in the geopolitical landscape, withongoing impacts to the global economy and markets. Domestic disturbances in Russia may also signal
weakening internal stability and growing tail risks associated with Russia-West tensions. The durationand path of the conflict remains uncertain and could continue to exacerbate global tensions, energy andother commodity shortages, supply chain disruptions, inflationary pressures, weakening sentiment andgrowth prospects, market volatility, cyberattacks, and the proliferation of sanctions and trade measures.
In particular, Europe continues to face uncertainty given its trade relationships with impacted regions
and its weakening economic prospects.
Tensions remain elevated between China and the U.S. and its allies over a number of issues, including
trade, technology, human rights, Taiwan, Hong Kong and Macau. Moreover, these trade tensions produce
additional vulnerabilities to the Canadian economy given the country’s trading relationship with the U.S.
and China, Canada’s two largest trading partners. Tensions between China and its neighbours overterritorial claims, and the prospect of even closer relations between China and Russia, as well as closer
relations between these two countries and Iran and North Korea, add further global and economic
uncertainty.
Geopolitical tensions in the Middle East and other regions could also add to economic and market
uncertainties. Should the war between Israel and Hamas broaden or escalate regionally, this may
destabilize global security, markets, and economic growth, along with key commodity markets. In
addition, an uncertain geopolitical or economic environment could lead to increases in polarization,social unrest or terrorism, each of which could have direct or indirect impacts to the bank.
More broadly, the future of global trade remains uncertain, as countries look to decrease reliance on the
global supply chain and nations with differing values. Increased protectionism and economic
nationalism could reshape global alliances and financial systems as the supply of critical goods of
economic and national importance (e.g., energy, critical minerals, semiconductors) remains one of the
top priorities of governments. We will continue to monitor these developments and others, and willassess the implications they have on us.

Environmental andWe, like other organizations, are subject to increased regulatory requirements and stakeholder
social risk
expectations to address social and racial inequality and other human rights issues.
(including climate change) Risks associated with climate change are evolving as it relates to the global transition to a net-zero
economy and physical climate risks (e.g., extreme weather events and chronic shifts in climate).
Environmental and social risks, including climate change, are each unique and transverse risks, andimpact all of our principal risk types in different ways and to varying degrees, including but not limited to
strategic, operational, credit, reputation, legal and regulatory environment, and regulatory compliancerisks.
For details on these risks and how we are managing them, refer to the Overview of other risks –Environmental and Social risk section.

64

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Top & emerging risks

Description

Digital disruption
and innovation

As the demand for digital banking services grow, the need to meet the rapidly evolving needs of clientsand compete with traditional and non-traditional competitors has increased our strategic and reputation
risks. Additional risks continue to emerge as demographic trends, evolving client expectations, theincreased power to analyze data and the emergence of disruptors are creating competitive pressuresacross a number of sectors. Moreover, established technology companies, new competitors, andregulatory changes continue to foster new business models that could challenge traditional banks andfinancial products. Finally, while the adoption of new technologies, such as AI (including generative AI)
and machine learning, presents opportunities for us, it is resulting or could result in new and complex
strategic, operational, regulatory, compliance and reputation risks that would need to be managed
effectively.

Privacy and data
related risks

The protection and responsible use of personal information are critical to maintaining our clients’ trust.
In addition, the management and governance of our data also remains a top risk given the high value
attributed to our data for the insights it can generate for clients and communities. Resulting implications
from failing to manage data and privacy risks could include financial loss, theft of intellectual property
and/or confidential information, litigation, enhanced regulatory attention and penalties, as well as
reputational damage. Effective privacy and information management practices continue to grow inimportance, as demonstrated by the continued development of complex regulations in the jurisdictions
in which we operate. Privacy and data related risks have also heightened as a result of the evolving
threat landscape, and associated data breach risks. For details on how we are managing these risks,refer to the Operational risk section.

Regulatory changes

The ongoing introduction of new or revised regulations requires enhanced focus across the organization
on meeting additional regulatory requirements across the multiple jurisdictions in which we operate.
Financial and other reforms that have been implemented or are being implemented across multiple
jurisdictions, such as digital, data and technology reforms, cyber security and anti-money laundering
regulations, interest rate benchmark and payments reform, as well as privacy, climate, sustainability andconsumer protection regulatory initiatives, continue to impact our operations and strategies. For moredetails, refer to the Legal and regulatory environment risk section.

Culture and conduct risks

Our Purpose, values and risk principles are key dimensions of our culture. We demonstrate our culture
through our conduct – the behaviours, decisions and actions of the organization and our employees.
Culture and conduct risks are considered top risks for the financial services industry due to the impactthat our choices, behaviours, and overall risk governance can have on outcomes for our clients andother stakeholders. We embed client considerations into our decision-making processes and continue tofocus on the fair treatment of clients which also aligns with regulatory direction. We seek to be
responsive to evolving employee needs while expecting employees to always act with integrity.
Regulators continue to focus on conduct risks, and heightened expectations generally from regulators
could lead to investigations, remediation requirements, higher compliance costs and enforcement
actions and fines, and potential criminal prosecutions or imposition of sanctions, which may involve
prohibitions or restrictions on some of our activities. While we take steps to continue to strengthen our
conduct practices, and prevent and detect risk outcomes which could potentially harm clients,
employees or the integrity of the markets, such outcomes may not always be prevented or detected. For
more details, refer to the Culture and conduct risks section.

Overview
As a global financial institution with a diversified business model, we actively manage a variety of risks to help protect andenable our businesses by following these risk management principles:
Risk management principles
•
•
•
•
•
•
•

Effectively balance risk and reward to enable sustainable growth.
Collectively share the responsibility for risk management.
Undertake only risks we understand and make thoughtful and future-focused risk decisions.
Always uphold our Purpose and vision, and consistently abide by our values and Code of Conduct to maintain our
reputation and the trust of our clients, colleagues and communities.
Maintain a healthy and robust control environment to protect our stakeholders.
Use judgment and common sense.
Always be operationally prepared and financially resilient for a potential crisis.

The dynamic nature of the financial services industry, and technological innovation, necessitate that our processes, tools, andpractices are continuously improving and responding to the changing landscape and emerging risks. We seek to accomplish thisthrough an effective and evolving risk management approach. All risk-taking activities and exposures are within the Boardapproved risk appetite, corresponding constraints and risk limits. We seek to ensure that our business activities and transactions
provide an appropriate balance of return for the risks assumed and the costs incurred. Our organizational design andgovernance processes are structured with the intent of maintaining independence of the Group Risk Management (GRM) function
from the businesses it supports.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

65

Risk drivers
We define risk as the potential vulnerabilities in the short-, medium- or long-term that may impact our financial results, financial
and operational resilience, reputation, business model or strategy. Risk can be realized through losses or an undesirable
outcome with respect to volatility of earnings in relation to expected earnings, capital adequacy or liquidity. Our principal risks
include credit, market, liquidity, insurance, operational, regulatory compliance, strategic, reputation, legal and regulatoryenvironment, competitive, and systemic risks, that have been classified into four categories (risk drivers) based on the level ofcontrol and influence that we can exert against these risks. There are certain activities that we undertake that will give rise to
several risks. There are also certain risks that are transverse (e.g., climate and conduct risks) that can impact other risk types.
Top and emerging risk categories are maintained by GRM and reviewed regularly to ensure all principal risks are reflected. This
classification methodology provides a common language and discipline for the identification and assessment of risk in existing
businesses, new businesses, products or initiatives, as well as acquisitions and alliances.

Control and influence

Less

Macroeconomic

Adverse changes in the macroeconomic environment can lead to a material impact on the real economy or
the financial system in any of the regions in which we operate.
– Examples include persistent inflationary pressures and high interest rates, high unemployment, economic
slowdowns or recessions, deterioration in the Canadian housing market, abrupt changes in the geopoliticalenvironment, unfavourable global trade agreements, political uncertainties, or the outbreak of a pandemicor other health crises.
Resultant impacts can materialize as loss of revenue, as well as the realization of credit, market or
operational risk losses.
The macroeconomic risk driver is the least controllable type of risk arising from the business environment inwhich we operate.
However, we have in place a number of controls to mitigate the impacts of systemic risk, including ourdiversified business model and funding sources, financial crisis management strategies and protocols,stress testing programs, and product and geographic diversification.

Strategic

Business strategy is a major driver of our risk appetite, including acquisitions and dispositions, responses tothreats posed by non-traditional competitors and responses to proposed changes in the regulatoryenvironment. Consequently, the strategic choices and capital allocations we make may change our risk
profile.
Choosing the wrong strategy, or poorly executing on the correct strategy, could result in reputational risk
consequences, impact our revenue mix, and/or affect our exposure to earnings volatility and loss absorption
capacity.
There is a fair degree of control and influence that we can exert in managing strategic and reputation risk.
While the legal and regulatory environment and competitive risks are less controllable, we advocate withgovernment and regulators and as an active participant in the Canadian and global financial services
industry.

Operational /Regulatory
Compliance

The complexity and scope of our operations across the globe exposes us to operational and regulatorycompliance risks.
We have a certain level of control over these risks through the effective management of operational risk andregulatory compliance risk, including how we manage our dependence on people, systems, and processes.
We also manage and mitigate the regulatory compliance risks associated with failing to comply with, or
adapt to, current and changing laws and regulations in the jurisdictions in which we operate.

Transactional /Positional

A more traditional risk perspective involving the risks of credit, market, liquidity and insurance losses,
arising from, among other things, lending transactions and balance sheet positions. These risks are an
integral part of our day-to-day business activities.
We understand these risks well and have the greatest level of control and influence over them.
We earn revenue by taking these transactional/positional risks.

MoreEnterprise risk management
Under the oversight of the Board and senior management, the Enterprise Risk Management Framework (ERMF) provides an
overview of our enterprise-wide programs for managing risk, including identifying, assessing, measuring, controlling, monitoring
and reporting on the significant risks that face the organization.
Risk governance
We have an effective and well-established risk governance framework in place that seeks to ensure risks impacting ourbusinesses are identified, appropriately categorized, assessed, managed and communicated to the Board in a timely manner.
This framework has been established, and is maintained in alignment with, the expectations of OSFI, the Basel Committee on
Banking Supervision’s (BCBS) corporate governance principles and the requirements and expectations of other regulators in thejurisdictions in which we conduct business, and in accordance with industry best practices. The Board oversees theimplementation of our risk management framework, while employees at all levels of the organization are responsible formanaging the day-to-day risks that arise in the context of their mandates. As illustrated below, we use the three lines of defence
governance model so that risks are appropriately and adequately managed throughout the enterprise to achieve our strategic
objectives.
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Management’s Discussion and Analysis

BOARD OF DIRECTORSRISK COMMITTEE

AUDIT COMMITTEEGOVERNANCE COMMITTEEHUMAN RESOURCES COMMITTEEThe Board periodically approves our Code of Conduct and closely collaborates with management to set the tone from above and promote a strong
governance culture that influences RBC at every level and across all our global businesses. The Board also approves our risk appetite, provides oversightand carries out its risk management mandate primarily through its committees:
The Risk Committee assists the Board in overseeing our risk management by ensuring that policies, processes and procedures, as well as the appropriateorganizational structure, budget and resources are in place to manage RBC’s significant risks. The Risk Committee oversees the risk management function,
annually assessing its effectiveness and periodically reviewing the results of independent assessments of the risk management functions. Its oversightactivities include the review of the GRM function which evaluates GRM’s success against its key priorities, the mandate of the Chief Risk Officer (CRO), andGRM’s organizational structure, budget and resources.
The Audit Committee assists the Board in its oversight of the integrity of our financial statements; the qualifications, performance, and independence of
our external auditors; the performance of our internal audit function, internal controls; and compliance with legal and regulatory requirements. In addition,
it oversees the finance, compliance, anti-money laundering and internal audit functions, having regard to their independence from the businesses whose
activities they review. It annually assesses the effectiveness of the Finance and Internal Audit functions, and it reviews and approves their respective
organizational structure, budget and resources, and charter, as well as the mandates of the CFO and the Chief Audit Executive.
The Governance Committee recommends to the Board individuals for Board member election or re-election and oversees the process for evaluating Board,committee and director effectiveness. Moreover, the Governance Committee serves at the conduct review committee and oversees the management of
culture and conduct. Additional responsibilities include (i) developing and recommending governance frameworks, principles and policies to the Board;(ii) overseeing and coordinating ESG matters at the Board and its committees; (iii) monitoring developments in corporate governance and adapting bestpractices to the bank’s needs and circumstances; and (iv) reviewing shareholder proposals and recommending responses to the Board.
The Human Resources Committee assists the Board in its oversight of compensation policies and major compensation programs, compensation risk
management and the compensation for the CEO and Group Executives (GE). It also oversees our pension plans, key talent management and humanresources strategies and practices, including employee engagement, diversity & inclusion and health & wellness, as well as succession plans for key
senior leadership roles.

THE GROUP EXECUTIVE AND GROUP RISK COMMITTEE
Actively shapes enterprise risk appetite and recommends it for Board approval.
Visibly supports and communicates enterprise risk appetite, seeking to ensure that sufficient resources and expertise are in place to help
provide effective oversight of adherence to the enterprise risk appetite.
Seeks to ensure principles, policies, authorities, resources, responsibilities and reporting are in place to support the control infrastructurenecessary for an effective enterprise-wide risk management program.
Oversees culture and conduct strategy and key activities.
Provides appropriate and timely information to the Board or its Committees with regard to the identification, measurement and managementof the significant risks to which we are exposed across all of our legal entities, businesses and operations globally.
The Compensation Risk Management Oversight Committee (CRMOC) oversees the design of major compensation programs in an effort toensure alignment with sound risk management principles, and that risks that may not be fully captured in our current financial performance
are appropriately considered in variable compensation payouts, including our enterprise risk profile relative to risk appetite. The CRMOC has
responsibility for ensuring our compensation programs align with the Financial Stability Board (FSB) Principles for Sound Compensation
Practices and Implementation Standards and other applicable guidance and best practices.

FIRST LINE OF DEFENCESECOND LINE OF DEFENCE

THIRD LINE OF DEFENCERISK OWNERSRISK OVERSIGHT

INDEPENDENT ASSURANCEAll employees across our businesses
and functional areas
Accountable for:Identification;
Assessment;
Measurement;
Mitigation;
Monitoring; andReporting of risk against approved
policies and appetite

RISK
MANAGEMENTGLOBALCOMPLIANCE
AND ANTIMONEY
LAUNDERINGOTHER
FUNCTIONAL
UNITSInternal Audit
Independent assurance to management
and the Board on the effectiveness of risk
management practices

Establishes risk management practices andprovides risk guidance
Provides oversight of the effectiveness ofFirst Line risk management practices
Monitors and independently reports on thelevel of risk against established risk appetite
The CRO has direct access to the Risk Committee
The Chief Compliance Officer and the Chief
Anti-Money Laundering Officer have directaccess to the Audit Committee
Other Functional Units includes theChief Financial Officer (CFO) Group, RBC Law
Group, Human Resources and the Chief
Administrative officer (CAO) Group. While theseother Functional Units perform some First Line
activities, they also have designatedSecond Line roles in supporting RBC’senterprise-wide risk management program

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

67

Risk appetite
Effective risk management protects us from unacceptable
losses or undesirable outcomes with respect to earnings
volatility, capital adequacy or liquidity, reputation risk or otherrisks while supporting and enabling our overall businessstrategy. It requires the clear articulation of our risk appetite,which is the amount and type of risk that we are able and willingto accept in the pursuit of our business objectives. It reflects ourself-imposed upper bound to risk-taking, set at levels inside ofregulatory limits and constraints, and influences our risk
management philosophy, Code of Conduct, business practices
and resource allocation. It provides clear boundaries and sets
an overall tone for balancing risk-reward trade-offs to ensure
the long-term viability of the organization.
Our risk appetite is integrated into our strategic, financial,and capital planning processes, as well as ongoing businessdecision-making processes and is reviewed and approved
annually by the Board.
Our Enterprise Risk Appetite Framework (ERAF) outlines thefoundational aspects of our approach to risk appetite,
articulates our quantitative and qualitative risk appetitestatements and their supporting measures and associatedconstraints, which can be applied at the enterprise, businesssegment, business unit and legal entity level, and describes ourrequirements and expectations to embed effective risk appetite
practices throughout the organization.

etite Compon
App
en
k
s
ts
Ri
Risk Capacity
Risk Appetite &Board Delegated Authorities
Risk Limits &Management DelegatedAuthorities

Risk Profile

Risk Posture

Risk appetite statements
Quantitative statements
•
•
•
•
•

Manage earnings volatility and exposure to future
losses under normal and stressed conditions.
Avoid excessive concentrations of risk.
Ensure capital adequacy and sound management ofliquidity and funding risk.
Ensure sound management of operational andregulatory compliance risk.
Maintain strong credit ratings and a risk profile in the
top half of our peer group.

Qualitative statements
•

•
•
•
•

Always uphold our Purpose and vision andconsistently abide by our values and Code of Conduct
to maintain our reputation and the trust of ourclients, colleagues and communities.
Undertake only risks we understand. Make thoughtful
and future-focused risk decisions, taking
environmental and social considerations into account.
Effectively balance risk and reward to enable
sustainable growth.
Maintain a healthy and robust control environment toprotect our stakeholders.
Always be operationally prepared and financiallyresilient for a potential crisis.

The allocation of our risk appetite across the bank is supported by the establishment of delegated authorities or risk limits.
These delegated authorities or risk limits represent the maximum level of risk permitted for a line of business, portfolio,
individual or group and are used to govern ongoing operations. Risk posture, the anticipated shift in risk profile as a result ofchanges in objectives, strategies and external factors, is used to provide insights on key areas that may require management
attention to ensure strategies are able to be executed successfully within our risk appetite.
Risk measurement
Quantifying risk is a key component of our enterprise-wide risk and capital management processes. Risk measurement andplanning processes are integrated across the enterprise, especially in regards to forward-looking projections and analyses,
including but not limited to, stress testing, recovery and resolution planning, and credit provisioning.
Certain risks, such as credit, market, liquidity and insurance risks, can be more easily quantified than others, such as
operational, reputation, strategic, legal, and regulatory compliance risks. For the risks that are more difficult to quantify, greater
emphasis is placed on qualitative risk factors and assessment of activities to gauge the overall level of risk. In addition,
judgmental risk measures and techniques such as stress testing, and scenario and sensitivity analyses can be used to assess andmeasure risks, and we are continuously evolving our risk measures and techniques to manage our risks. Our primary methods formeasuring risk include:•
Quantifying expected loss: losses that are statistically expected to occur as a result of conducting business in a given time
period;•Quantifying unexpected loss: an estimate of the deviation of actual earnings from expected earnings, over a specified time
horizon;•Stress testing: evaluates, from a forward-looking perspective, the potential effects of a set of specified changes in risk
factors, corresponding to exceptional but plausible adverse economic and financial market events; and•Back-testing: the realized values are compared to the parameter estimates that are currently used in an effort to ensure theparameters remain appropriate for regulatory and economic capital calculations.

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Management’s Discussion and Analysis

Stress testing
Stress testing is an important component of our risk management framework. Stress testing results are used for:•
Assessing the viability of long-term business plans and strategies;•
Monitoring our risk profile relative to our risk appetite in terms of earnings and capital at risk;•
Setting limits;•
Identifying key risks to, and potential shifts in, our capital and liquidity levels, as well as our financial position;•
Enhancing our understanding of available mitigating actions in response to potential adverse events; and•Assessing the adequacy of our capital and liquidity levels.
Our enterprise-wide stress tests evaluate key balance sheet, income statement, leverage, capital and liquidity impacts arisingfrom risk exposures and changes in earnings. The results are used by the Board, Group Risk Committee (GRC) and senior
management risk committees to understand our performance drivers under stress, and review stressed capital, leverage andliquidity ratios against regulatory thresholds and internal limits. The results are also incorporated into our Internal Capital
Adequacy Assessment Process (ICAAP) and capital plan analyses.
We evaluate a number of enterprise-wide stress scenarios over a multi-year horizon, featuring a range of severities. Our
Board reviews the recommended scenarios, and GRM leads the scenario assessment process. Results from across theorganization are integrated to develop an enterprise-wide view of the impacts, with input from subject matter experts in GRM,
Corporate Treasury, Finance, Economics and the various business segments. Generally, our stress testing scenarios evaluate
global recessions, equity market corrections, elevated debt levels, changes in interest rates, real estate price corrections, andshocks to credit spreads and commodity markets, among other factors. During our fiscal 2023 stress testing exercises, weaddressed several top and emerging risks including geopolitical tensions, rising interest rates, cyber threats and climate risks,with a focus on the impacts of these risks on revenue, losses, net income and capital projections.
Ongoing stress testing and scenario analyses within specific risk types, such as market risk (including Interest Rate Risk in
the Banking Book [IRRBB]), liquidity risk, retail and wholesale credit risk, operational risk and insurance risk, supplement andsupport our enterprise-wide analyses. Results from these risk-specific programs are used in a variety of decision-making
processes including risk limit setting, portfolio composition evaluation, risk appetite articulation and business strategy
implementation.
In addition to ongoing enterprise-wide and risk-specific stress testing, we use ad hoc and reverse stress testing to deepen
our knowledge of the risks we face. Ad hoc stress tests are one-off analyses used to investigate developing conditions or to stressa particular portfolio in more depth. Reverse stress tests aim to reverse-engineer scenarios that might lead to a particular severe
outcome, such as bank non-viability, and are used in resolution & recovery planning and to improve our understanding of risk/
return boundaries.
In addition to internal stress tests, we participate in a number of regulatory stress testing exercises, on a periodic basis, acrossseveral jurisdictions.

Model governance and validation
Quantitative models are used for many purposes including, but not limited to, the valuation of financial products, theidentification, measurement and management of different types of risk, stress testing, assessing capital adequacy, informing
business and risk decisions, measuring compliance with internal limits, meeting financial reporting and regulatory requirements,
and issuing public disclosures.
Model risk is the risk of adverse financial and/or reputational consequences to the enterprise arising from the use or misuseof a model at any stage throughout its life cycle and is managed through our model risk governance and oversight structure. The
governance and oversight structure, which is implemented through our three lines of defence governance model, is founded on
the basis that model risk management is a shared responsibility across the three lines spanning all stages of the model’s life
cycle.
Prior to being used, models are subject to independent validation and approval by our enterprise model risk management
function, a team of modelling professionals with reporting lines independent of those of the model owners, developers and users.
The validation seeks to ensure that models are sound and capable of fulfilling their intended use. In addition to independently
validating models prior to use, our enterprise model risk management function provides controls that span the life-cycle of amodel, including model change management procedures, requirements for ongoing monitoring, and annual assessments toensure each model continues to serve its intended purpose.
AI based applications are subject to the same model governance and validation requirements as other models and areassessed in conjunction with other relevant risk functions. Controls for predominant AI risks, including fairness andexplainability, are subject to Risk Committee oversight and approval. Model risk reports including AI matters are reviewed
periodically by the Board.
Risk control
Our enterprise-wide risk management approach is supported by a comprehensive set of risk controls that are defined in our
ERMF. The ERMF serves as the foundation for our approach to risk management and promotes RBC’s risk management
principles, approach and governance. It further sets the expectations for the development and communication of policies, theestablishment of formal independent risk review and approval processes, and the establishment of delegated risk approvalauthorities and risk limits. The ERMF is further reinforced and supported by a number of additional Board-approved risk
frameworks, various policies thereunder and a comprehensive set of risk controls. Together, our risk frameworks and supporting
policies provide direction and insight on how respective risks are identified, assessed, measured, managed, mitigated, monitored
and reported. The enterprise-wide policies are considered our minimum requirements, articulating the parameters within whichbusiness groups and employees must operate.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

69

Enterprise Risk Policy ArchitectureEnterprise Risk Management
Framework
Enterprise Culture andConduct Risks
Framework

Enterprise Risk Appetite
Framework

Information
Regulatory
Regulatory
Data
AML
Liquidity
Insurance
Reputation
Operational
Operational
CapitalTechnology
Credit Risk
Market Risk
Compliance
ComplianceManagement Compliance
Risk
Risk
Risk
Risk
Risk
Management
Risk
Management Management
Management Management Management & Reporting Management
Management Management
Management Management
Management
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework
Framework

Supporting Risk-specific Enterprise-Wide Policies (examples)

Credit Risk
Mitigation
PolicyMarket Risk
PolicyLiquidity
Risk Policy

Insurance
Risk
Mitigation
PolicyDividends& Capital
Note Coupons
PolicyFiduciary
Risk Policy

Internal
Data
AML Client
Internal
Privacy Risk Information
Controls
Controls
Management
Risk
Management Management
Security
Management& Reporting Management
PolicyPolicyPolicyPolicyPolicyPolicyEnterprise-Wide Policies for Multiple Risk Types(e.g., Product Suitability Risk Policy; Policy on Risk Limits and Risk Approval Authorities; Policy on Environmental (including Climate) and Social Risk; Stress-Testing Policy)

Segment or Region-specific Risk Policy and Procedures
The approval hierarchy for risk frameworks and policy documents:
Board of Directors or Board Committees
Senior Management Committees (e.g., Policy Review Committee, Operational Risk Committee, Asset Liability Committee) for most policies.
Board or Board Committee approval is required in some instances (e.g., RBC Code of Conduct, Dividend Policy)
Generally, by business or Functional Unit management/committees. Group Risk Management approval is required if there are significant
risk implications

Risk appetite, risk approval authorities and risk limits
Risk Appetite is the amount and type of risk that we are able and willing to accept in the pursuit of our business objectives. It
reflects our self-imposed upper bound to risk taking and influences our risk management philosophy, conduct, operating styleand resource allocation. Risk Appetite is supported by Risk Approval Authorities delegated by the Board to senior management
which provide thresholds for escalation of exposures and transactions to the Risk Committee of the Board for review andapproval. The allocation of Risk Appetite and Board Delegated Authorities may be supported by the establishment ofmanagement delegated authorities and/or risk limits. These represent the maximum level of risk permitted for a line of business,
portfolio, individual or other groups. These authorities and limits are used to implement risk management strategies and govern
ongoing operations. Excesses to risk approval authorities and risk limits can act as early warning indicators for risk appetite
constraints allowing for timely management attention. Senior management can delegate some or all of their authorities onwards
to others in the organization. The delegated authorities enable the approval of single name, geographic and industry sectors, andproduct and portfolio exposures within defined parameters and limits. They are also used to manage concentration risk,
establish underwriting and inventory limits for trading and investment banking activities and set market risk tolerances.
Risk review and approval processes
Risk review and approval processes provide an important control mechanism and are established by GRM based on the nature,size and complexity of the risk involved. In general, the risk review and approval process involves a formal review and approvalby an individual, group or committee that is independent from the originator. The approval responsibilities are governed by theEnterprise Risk Appetite Framework and the delegated risk authorities and risk limits are based on the following categories:
transactions, projects and initiatives, and new products and services.
Risk monitoring and reporting
Enterprise and business segment level risk monitoring and internal reporting are critical components of our enterprise risk
management program and support the ability of senior management and the Board to effectively perform their risk management
and oversight responsibilities. The ongoing monitoring of our risk profile, and the organization’s risk exposure against our risk
appetite, enables proactive risk management and oversight. It seeks to ensure that our businesses operate within establishedand approved risk appetite; detect areas where business activity or growth may be constrained in the future; identify situations
where risk taking may be overly conservative or aggressive; enable senior management to assess the impact of stress andunanticipated events; and inform the development and implementation of risk mitigation strategies in order to operate withinrisk appetite. The Risk Committee of the Board receives a CRO report at each meeting that has been reviewed by senior
management, and which includes, among others, top and emerging risks, industry trends or other notable items. On a quarterly
basis, we provide our Enterprise Risk Report to senior management and the Risk Committee of the Board which includes, among
others, top and emerging risks, risk profile relative to our risk appetite, portfolio quality metrics and a range of risks we facealong with an analysis of the related issues, key trends and, when required, management actions. On an annual basis, we provide
a benchmarking review to the Board which compares our performance to peers across a variety of risk metrics and includes acomposite risk scorecard which provides an objective measure of our ranking relative to the peer group. In addition to ourregular risk monitoring, other risk-specific presentations are provided to, and discussed with, senior management and the Board
on top and emerging risks or changes in our risk profile. In addition, we publish external reports on risk matters to comply withregulatory requirements.
70

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

The shaded text along with the tables specifically marked with an asterisk (*) in the following sections of the MD&A represent
our disclosures on credit, market and liquidity and funding risks in accordance with IFRS 7, Financial Instruments: Disclosures,and include discussion on how we measure our risks and the objectives, policies and methodologies for managing these risks.
Therefore, these shaded text and marked tables represent an integral part of our 2023 Annual Consolidated Financial
Statements.
Transactional/positional risk drivers
Credit risk
Credit risk is the risk of loss associated with an obligor’s potential inability or unwillingness to fulfill its contractual obligations
on a timely basis and may arise directly from the risk of default of a primary obligor (e.g., issuer, debtor, counterparty,
borrower or policyholder), indirectly from a secondary obligor (e.g., guarantor or reinsurer), and/or through off-balance sheet
exposures, contingent credit risk, associated credit risk and/or transactional risk. Credit risk includes counterparty credit risk
arising from both trading and non-trading activities. Exposure to credit risk may occur any time funds are extended,committed or invested through an actual or implied contractual agreement.
The responsibility for managing credit risk is shared broadly following the three lines of defence governance model. The
allocation of the Board approved credit risk appetite is supported by the establishment of risk approval authorities and risk
limits, delegated by the Board to the President & CEO and CRO. Credit transactions in excess of these authorities must be
approved by the Risk Committee of the Board. To facilitate day-to-day business activities, the CRO has been empowered tofurther delegate credit risk approval authorities to individuals within GRM, the business segments, and functional units as
deemed necessary.
We balance our risk and return by setting the following objectives for the management of credit risk:•
Ensuring credit quality is not compromised for growth;•Managing credit risks in transactions, relationships and portfolios;•
Avoiding excessive concentrations in correlated credit risks;•
Using our credit risk rating and scoring systems or other approved credit risk assessment or rating methodologies,
policies and tools;•
Pricing appropriately for the credit risk taken;•
Detecting and preventing inappropriate credit risk through effective systems and controls;•
Applying consistent credit risk exposure measurements;•
Ongoing credit risk monitoring and administration;•
Transferring credit risk to third parties where appropriate through approved credit risk mitigation techniques (e.g., sale,hedging, insurance, securitization); and•Avoiding activities that are inconsistent with our values, Code of Conduct or policies.
The Enterprise Credit Risk Management Framework (ECRMF) provides an overview of our approach to the management ofCredit Risk including principles, methodologies, systems, roles and responsibilities, reports and controls. Additional
supporting policies exist that are designed to provide further clarification of roles and responsibilities, acceptable practices,limits and key controls within the enterprise.
Credit risk measurement
We quantify credit risk at both the individual obligor and portfolio levels to manage expected credit losses and minimize
unexpected losses to limit earnings volatility and ensure we are adequately capitalized.
We employ a variety of risk measurement methodologies to measure and quantify credit risk for our wholesale and retailcredit portfolios. The wholesale portfolio is comprised of businesses, sovereigns, public sector entities, banks and otherfinancial institutions, as well as certain HNW individuals. The retail portfolio is comprised of residential mortgages, personalloans, credit cards and small business loans. Our credit risk rating systems are designed to assess and quantify the risk
inherent in credit activities in an accurate and consistent manner. The resulting ratings and scores are then used for bothclient- and transaction-level risk decision-making and as key inputs for our risk measurement and capital calculations.
Measurement of economic and regulatory capital
Economic capital, which is our internal quantification of risks, is used for limit setting. It is also used for internal capital
adequacy and allocation of capital to the Insurance segment. Our methodology for allocating capital to our businesssegments, other than Insurance, is based on regulatory requirements. For further details, refer to the Capital management
section.
In measuring credit risk to determine regulatory capital, two principal approaches are available: the Internal Ratings
Based (IRB) Approach and the Standardized Approach as per OSFI’s CAR guideline. The IRB Approach allows both a fullmodelled based approach referred to as the Advanced Internal Ratings Based (A-IRB) Approach and a more supervisorybased approach know as the Foundation Internal Ratings Based Approach (F-IRB).
The Standardized Approach applies primarily to Wealth Management, including our City National wholesale portfolio, as
well as our Caribbean banking operations, and is based on risk weights prescribed by OSFI that are used to calculate RWA for
credit risk exposure.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

71

The A-IRB Approach, which applies to most of our retail and wholesale credit risk exposures (excluding F-IRB exposures
discussed below), utilizes three key parameters which form the basis of our credit risk measures for both regulatory andeconomic capital:•
Probability of default (PD): An estimated percentage that represents the likelihood of default within a given time period ofan obligor for a specific rating grade or for a particular pool of exposure.
•
Exposure at default (EAD): An amount expected to be owed by an obligor at the time of default.
•
Loss given default (LGD): An estimated percentage of EAD that is not expected to be recovered during the collections andrecovery process following a default.
These parameters are determined based primarily on historical experience from internal credit risk rating systems inaccordance with supervisory standards.
PD is estimated based on a long-run average of default rates for a specific rating grade or for a particular pool of
exposure. The PD assigned to a default grade(s) or pools, consistent with the definition of default, is 100%.
EAD is estimated based on the current exposure to the obligor and the possible future changes in that exposure driven byfactors such as the current utilization of approved limit. As with LGD, rates are estimated to reflect an economic downturn,with added conservatism to reflect data and statistical uncertainties identified in the modelling process.
Each credit facility is assigned an LGD rate that is largely driven by factors that impact the extent of losses anticipated in
the event the obligor defaults. These factors mainly include seniority of debt, collateral and the industry sector in which the
obligor operates. Estimated LGD rates draw primarily on internal loss experiences. Where we have limited internal loss data,
we also refer to appropriate external data to supplement the estimation process. LGD rates are estimated to reflect
conditions that might be expected to prevail in a period of an economic downturn, with additional conservatism added toreflect data limitations and statistical uncertainties identified in the estimation process.
Estimates of PD, LGD and EAD are reviewed on an annual basis and updates are then validated by an independentvalidation team within the bank. In addition, quarterly monitoring and back-testing is performed by the estimation team.
These ratings and risk measurements are used to determine our expected losses as well as economic and regulatory capital,
setting of risk limits, portfolio management and product pricing.
The F-IRB Approach is a prescribed regulatory approach that must be used to determine RWA related to our exposures toall banks and large corporates defined as having total consolidated revenues in excess of $750 million annually. The F-IRB
Approach uses the same PD parameter as the A-IRB Approach but requires the use of supervisory-prescribed EAD and LGD
parameters.

Financial and regulatory measurement distinctions
Expected loss models are used for both regulatory capital and accounting purposes. Under both models, expected losses arecalculated as the product of PD, LGD and EAD. However, there are certain key differences under current Basel and IFRS
reporting frameworks which could lead to significantly different expected loss estimates, including:•Basel PDs are based on long-run averages over an entire economic cycle. IFRS PDs are based on current conditions,adjusted for estimates of future conditions that will impact PD under probability-weighted macroeconomic scenarios.
•
Basel PDs consider the probability of default over the next 12 months. IFRS PDs consider the probability of default overthe next 12 months only for instruments in stage 1. Expected credit losses for instruments in stage 2 are calculated using
lifetime PDs.
•
Basel LGDs are based on severe but plausible downturn economic conditions. IFRS LGDs are based on current conditions,adjusted for estimates of future conditions that will impact LGD under probability-weighted macroeconomic scenarios.
For further details, refer to the Critical accounting policies and estimates section.
Gross credit risk exposure
Gross credit risk is categorized as i) lending-related and other credit risk or ii) trading-related credit risk, and is calculated
based on the Basel III framework. Under this method, EAD for all lending-related and other credit transactions and tradingrelated repo-style transactions is calculated before taking into account any collateral and is inclusive of an estimate ofpotential future changes to that credit exposure. EAD for derivatives is calculated inclusive of collateral in accordance withregulatory guidelines.
Lending-related and other credit risk includes:•
Loans and acceptances outstanding, undrawn commitments, and other exposures, including contingent liabilities such as
letters of credit and guarantees, debt securities carried at FVOCI or amortized cost and deposits with financial
institutions. Undrawn commitments represent an estimate of the contractual amount that may be drawn upon at the timeof default of an obligor.
Trading-related credit risk includes:•
Repo-style transactions, which include repurchase and reverse repurchase agreements and securities lending andborrowing transactions. For repo-style transactions, gross exposure represents the amount at which securities were
initially financed, before taking collateral into account.
•
Derivative amounts which represent the credit equivalent amount, as defined by OSFI as the replacement cost plus an
add-on amount for potential future credit exposure, scaled by a regulatory factor. For further details on replacement costand credit equivalent amounts, refer to Note 9 of our 2023 Annual Consolidated Financial Statements.
Credit risk assessment
Wholesale credit risk
The wholesale credit risk rating system is designed to measure the credit risk inherent in our wholesale credit activities.
Each obligor is assigned a borrower risk rating (BRR), reflecting an assessment of the credit quality of the obligor. Each
BRR has a PD calibrated against it. The BRR differentiates the riskiness of an obligor and represents our evaluation of theobligor’s ability and willingness to meet its contractual obligations on time over a three year time horizon. The assignment of
BRRs is based on the evaluation of the obligor’s business risk and financial risk through fundamental credit analysis, as well
as data-driven modelling. The determination of the PD associated with each BRR relies primarily on internal default history
72

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

since 2006. PD estimates are designed to be a long-run average of our experience across the economic cycle in accordancewith regulatory guidelines.
Our rating system is designed to stratify obligors into 22 grades. The following table aligns the relative rankings of our
22-grade internal risk ratings with the external ratings used by S&P and Moody’s.
Internal ratings map*

Table 42PD Bands

Ratings Business and Bank
1
2
3
4
5

*

0.0000% – 0.0500%
0.0000% – 0.0500%
0.0000% – 0.0500%
0.0000% – 0.0500%
0.0000% – 0.0550%

Sovereign

BRR

S&P

Moody’s

0.0000% – 0.0150%
0.0151% – 0.0250%
0.0251% – 0.0350%
0.0351% – 0.0450%
0.0451% – 0.0550%

1+
1H
1M
1L
2+H

AAA
AA+
AA
AAA+

Aaa
Aa1
Aa2
Aa3
A1

Description

Investment Grade

6
7
8
9
10

0.0551% – 0.0650%
0.0651% – 0.0750%
0.0751% – 0.0850%
0.0851% – 0.1030%
0.1031% – 0.1775%

2+M
2+L
2H
2M
2L

A
ABBB+
BBB
BBB-

A2
A3
Baa1
Baa2
Baa3

11
12
13
14
15
16
17
18
19
20

0.1776% – 0.3470%
0.3471% – 0.6460%
0.6461% – 1.0620%
1.0621% – 1.5520%
1.5521% – 2.2165%
2.2166% – 4.5070%
4.5071% – 7.1660%
7.1661% – 13.1760%
13.1761% – 24.9670%
24.9671% – 99.9990%

2-H
2-M
2-L
3+H
3+M
3+L
3H
3M
3L
4

BB+
BB
BBB+
B
BCCC+
CCC
CCCCC

Ba1
Ba2
Ba3
B1
B2
B3
Caa1
Caa2
Caa3
Ca

Non-investment
Grade

21
22

100%
100%

5
6

D
D

C
C

ImpairedThis table represents an integral part of our 2023 Annual Consolidated Financial Statements.

Counterparty credit risk
Counterparty credit risk is the risk that a party with whom we have entered into a financial or non-financial contract will fail tofulfill its contractual agreement and default on its obligation. It incorporates not only the contract’s current value, but also
considers how that value can move as market conditions change. Counterparty credit risk usually arises from trading-related
derivative and repo-style transactions. Derivative transactions include forwards, futures, swaps and options, and can haveunderlying references that are either financial (e.g., interest rate, foreign exchange, credit, or equity) or non-financial (e.g.,precious metal or other commodities). For further details on our derivative instruments and credit risk mitigation, refer to Note 9of our 2023 Annual Consolidated Financial Statements.
Trading counterparty credit activities are undertaken in a manner consistent with the relevant requirements under
enterprise Credit, Market, and Model risk management frameworks and with approval in accordance with the appropriatedelegated authorities.
The primary risk mitigation techniques for trading counterparty credit risk are close-out netting and collateralization.
Close-out netting considers the net value of contractual obligations between counterparties in a default situation, thereby
reducing overall credit exposure. Collateralization is when a borrower pledges assets as security, which provides recourse to thelender in the event of default. The policies that we maintain in relation to the recognition of risk mitigation from these techniques
incorporate such considerations as:•
The use of standardized agreements such as the International Swaps and Derivatives Association Master Agreement andCredit Support Annex;•
Generally restricting eligible collateral to high quality liquid assets, primarily cash and highly-rated government securities,
subject to appropriate haircuts; and•The use of initial margin and variation margin arrangements in accordance with regulatory requirements and internal risk
standards.
Similarly, for securities finance and repurchase trading activity we mitigate counterparty credit risk via the use ofstandardized securities finance agreements, and by taking collateral generally in the form of eligible liquid securities.
We also mitigate counterparty credit risk through the use of central counterparties (CCPs). These highly-regulated entities
intermediate trades between participating bilateral counterparties and mitigate credit risk through the use of initial andvariation margin and the ability to net offsetting trades amongst participants. The specific structure and capitalization, including
contingent capital arrangements, of individual CCPs are analyzed as part of assigning an internal counterparty credit risk rating
and determining appropriate counterparty credit risk limits.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

73

Wrong-way risk
Wrong-way risk is the risk that exposure to a counterparty is adversely correlated with the credit quality of that counterparty.
There are two types of wrong-way risk:•
Specific wrong-way risk, which exists when our exposure to a particular counterparty is positively correlated with the PD of
the counterparty due to the nature of our transactions with them (e.g., loans collateralized by shares or debt issued by thecounterparty or a related party). Specific wrong-way risk over-the-counter (OTC) derivative trades are done on an exception
basis only, and are permitted only when explicitly pre-approved by GRM. Factors considered in reviewing such trades include
the credit quality of the counterparty, the nature of the asset(s) underlying the derivative and the existence of credit
mitigation.
•
General wrong-way risk, which exists when there is a positive correlation between the PD of the counterparties and generalmacroeconomic or market factors. General wrong way risk can arise in various circumstances, depending on the transaction,
collateral type, and the nature of the counterparty. We monitor general wrong-way counterparty credit risk using a variety of
metrics including stress scenarios, correlation analysis, and investment strategy concentration.
Retail credit risk
Credit scoring is the primary risk rating system for assessing obligor and transaction risk for retail exposures. Scoring models
use internal and external data to assess and score borrowers, predict future performance and manage limits for existing loans
and collection activities. Credit scores are one of the factors employed in the acquisition of new clients and management ofexisting clients. The credit score of the borrower is used to assess credit risk for each independent acquisition or accountmanagement action, leading to an automated decision or guidance for an adjudicator. Credit scoring improves credit decisionquality, adjudication timeframes and consistency in the credit decision process and facilitates risk-based pricing.
We seek to continuously improve our credit scoring and analytic capabilities by exploring client behavioral data andadvanced analytical techniques to make sound credit decisions.
To arrive at a retail risk rating, borrower scores are categorized and associated with PDs for further grouping into risk
rating categories. The following table maps PD bands to various summarized risk levels for retail exposures:
Internal ratings map*
PD bands*

Table 43
Description

0.050% – 3.965%

Low risk

3.966% – 7.428%

Medium risk

7.429% – 99.99%

High risk

100%

Impaired/Default

This table represents an integral part of our 2023 Annual Consolidated Financial Statements.

Credit risk mitigation
We seek to reduce our exposure to credit risk through a variety of means, including the structuring of transactions and theuse of collateral.

Structuring of transactions
Specific credit policies and procedures set out the requirements for structuring transactions. Risk mitigants include the useof guarantees, collateral, seniority, LTV requirements and covenants. Product-specific guidelines set out appropriate
product structuring as well as client and guarantor criteria.
Collateral
When we advance credit, we often require obligors to pledge collateral as security. The extent of risk mitigation provided bycollateral depends on the amount, type and quality of the collateral taken. Specific requirements relating to collateralvaluation and management are set out in our credit risk management policies.
The types of collateral we use to secure credit or trading facilities within the bank are varied. For example, our securities
financing and collateralized OTC derivatives activities are primarily secured by cash and highly-rated liquid government andagency securities. Wholesale lending to business clients is often secured by pledges of the assets of the business, such asaccounts receivable, inventory, operating assets and commercial real estate. In Canadian Banking and Wealth Management,
collateral typically consists of a pledge over a real estate property, or a portfolio of debt securities and equities trading on arecognized exchange.
•
We employ a risk-based approach to property valuation. Property valuation methods include automated valuation
models (AVM) and appraisals. An AVM is a tool that estimates the value of a property by reference to market data
including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which theproperty being valued is located. Using a risk-based approach, we also employ appraisals which can include drive-by or
full on-site appraisals.
•
We continue to actively manage our mortgage portfolio and perform stress testing, based on a combination ofincreasing unemployment, rising interest rates and a downturn in real estate markets.
•
We seek to be in compliance with regulatory requirements that govern residential mortgage underwriting practices,
including LTV parameters and property valuation requirements.
There were no significant changes regarding our risk management policies on collateral or to the quality of the collateral
held during the period.

74

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Credit risk approval
The Board, GE, GRC and other senior management committees work together to ensure the ECRMF and supporting policies,
processes and procedures exist to manage credit risk and approve related credit risk limits. Reports are provided to theBoard, the GRC, and senior executives to keep them informed of our risk profile, including significant credit risk issues, shifts
in exposures and trending information, to ensure appropriate and timely actions can be taken where necessary. Our
enterprise-wide credit risk policies set out the minimum requirements for the management of credit risk in a variety ofborrower, transactional and portfolio management contexts.

Transaction approval
Credit transactions are governed by our RBC Enterprise Policy on Risk Limits and Risk Approval Authorities that captures theauthorities and risk limits delegated to management as well as the credit rules policy, which outlines the minimum standards
for managing credit risk at the individual client relationship and/or transaction level. The credit rules policy is further
supported by business and/or product-specific policies and guidelines as appropriate. Where a transaction will exceed
senior management’s authorities, the approval of the Risk Committee of the Board is required.
Product approval
Proposals for credit products and services are comprehensively reviewed and approved under a risk assessment process
and are subject to product and suitability risk approval authorities which increase as the level of risk increases. New andamended products must be reviewed relative to all risk drivers, including credit risk. All existing products must be reviewed
on a regular basis following a risk-based assessment approach.
Credit risk limits•
The allocation of risk appetite and Board delegated authorities are supported by the establishment of risk limits whichtake both regulatory constraints and internal risk management judgment into account. Risk limits are established at thefollowing levels: single name limits, regional, country and industrial sector limits (notional and economic capital),regulatory large exposure limits, product and portfolio limits, and underwriting and distribution risk limits. These limits
apply across all businesses, portfolios, transactions and products.
•
We actively manage credit exposures and limits to ensure alignment with our risk appetite, to maintain our target
business mix and to ensure that there is no undue concentration risk.
•
Concentration risk is defined as the risk arising from large exposures that are highly correlated such that theirability to meet contractual obligations could be similarly affected by changes in economic, political, or other risk
drivers.
•
Credit concentration limits are reviewed on a regular basis after considering business, economic, financial, andregulatory environments.
Credit risk administration
Loan forbearance
In our overall management of borrower relationships, economic or legal reasons may necessitate forbearance to certain clientswith respect to the original terms and conditions of their loans. We have specialized groups and formalized policies that direct
the management of high risk, delinquent or defaulted borrowers. We strive to identify borrowers in financial difficulty early andmodify their loan terms to minimize losses and assist clients in need. A forbearance agreement may be entered into with theborrower where we will forbear from enforcing on security in exchange for concessions made by the borrower. In thesecircumstances, a borrower may be granted concessions that would not otherwise be considered. Examples of such concessions
to retail borrowers may include rate reduction, payment deferral and term extensions. Concessions to wholesale borrowers may
include payment deferral, restructuring the agreements, modifying the original terms of the agreement and/or relaxation ofcovenants. For both retail and wholesale loans, the appropriate remediation techniques are based on the individual borrower’s
situation, our policy and the client’s willingness and capacity to meet the new arrangement.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

75

Credit risk exposure by portfolio, sector and geography
The following table presents our credit risk exposures under the Basel regulatory defined classes and reflects EAD. The
classification of our sectors aligns with our view of credit risk by industry.
Credit risk exposure by portfolio, sector and geography

Table 44
As at

October 31
2023 (1)Credit risk (2), (3)On-balance
sheet amount(Millions of Canadian dollars)

RetailResidential secured (7)Qualifying revolving (8)Other retail
Total retail

2022

Counterparty credit risk (6)Off-balance sheet
amount (4)Undrawn

October 31

Other (5)Repo-styletransactions

Derivatives

Counterparty credit risk (6)Credit risk (2), (3)Total
exposureOn-balance
sheet amountOff-balance sheet
amount (4)Undrawn

Other (5)Repo-styletransactions

Derivatives

Total
exposure$

451,610 $ 114,612 $
36,091
110,473
48,16220,804

–
–
136

$

– $
–
–

– $
–
–

566,222
146,564
69,102$

393,346 $ 107,604 $
32,474
94,94998,07019,993

–
–
136

$

– $
–
–

– $
–
–

500,950
127,423
118,199$535,863 $ 245,889 $

136

$

– $

– $

781,888$523,890 $ 222,546 $

136

$

– $

– $

746,572$– $–101,736–––
83,692472–
10,736
–
118
–
–

117 $
1,148
41,300
1,030
2,070
3,134
22,611
1,079
67
5,692
811
704
383
391

14,271
21,982
230,682
29,16018,292
19,619183,8508,251
2,869
295,252
22,583
13,37331,613
7,127$

10,417 $
8,919
73,335
19,666
7,103
6,086
45,394
5,762
1,143
279,401
10,755
5,291
23,7642,377

2,089 $
9,184
5,487
9,297
6,750
11,27225,017
2,352
1,033
5,678
9,319
7,144
3,946
4,259

36
317
1,036
569
346
1,923
3,530
163
230
1,563
601
298
669
945

$

– $
–
111,559–––
69,790237–
18,745
–
55
157
–

161 $
1,606
38,830
949
1,923
5,959
24,546
780
78
6,290
1,216
1,908
458
467

12,70320,026230,247
30,481
16,122
25,240168,2779,294
2,484
311,677
21,891
14,69628,9948,048

Wholesale
Agriculture$
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works andinfrastructure
Real estate and related
Other services
Telecommunicationand media
Transportation
Utilities
Other sectors

11,316 $11,56882,31918,348
8,680
6,498
48,5893,988
1,485
270,382
11,251
5,252
25,9212,144

2,792 $
8,586
3,060
9,132
6,996
8,373
24,140
1,265
1,004
6,960
9,898
6,942
4,608
3,548

46
680
2,267
650
546
1,614
4,818
1,447
313
1,482
623
357
701
1,044

2,613
102,235
30,617

1,534
20,406
14,203

529
1,592
2,598

–
–
–

156
850
741

4,832
125,083
48,1592,614
89,926
27,8392,417
18,295
13,425

497
1,872
2,848

–
–
33

144
818
852

5,672
110,91144,997

8,597
8,461
14,495
8,698

6,529
5,925
20,389
2,773

132
1,009
6,367
1,193

–
–
–
88

2,794
2,408
4,638
20,08418,052
17,80345,88932,836

7,301
6,394
12,318
4,113

8,298
6,386
20,651
1,700

79
930
5,275
71

–
–
–
73

2,751
2,069
5,081
20,126

18,42915,77943,32526,083

Total wholesale$

683,457 $ 169,063 $ 30,008$ 196,842 $ 112,208 $ 1,191,578$

649,918 $ 173,999 $ 23,798$ 200,649 $ 117,012 $ 1,165,376

Total exposure (2)$ 1,219,320 $ 414,952 $ 30,144$ 196,842 $ 112,208 $ 1,973,466$ 1,173,808 $ 396,545 $ 23,934$ 200,649 $ 117,012 $ 1,911,948

$

$

$

$

By geography (9)CanadaU.S.
EuropeOther International
Total exposure (2)

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

729,131 $ 306,474 $ 10,676
358,605
79,256
13,45958,49621,987
3,467
73,0887,235
2,542$ 1,219,320 $ 414,952 $ 30,144

80,664 $62,966
27,63725,57542,123 $ 1,169,068
24,878539,164
31,749143,336
13,458
121,898$ 196,842 $ 112,208 $ 1,973,466

697,015 $ 284,705 $ 9,444
334,82179,82910,14579,34325,4852,603
62,6296,526
1,742$ 1,173,808 $ 396,545 $ 23,934

79,795 $59,866
39,244
21,744

41,923 $ 1,112,882
24,161
508,822
36,107
182,782
14,821
107,462$ 200,649 $ 117,012 $ 1,911,948

Balances as at October 31, 2023 reflect our adoption of the revised CAR guidelines that came into effect in Q2 2023 as part of OSFI’s implementation of the Basel III
reforms.
Excludes securitization, banking book equities and other assets not subject to the standardized or IRB approach.
EAD for standardized exposures are reported net of allowance for impaired assets and EAD for IRB exposures are reported gross of all ACL and partial write-offs as per
regulatory definitions.
EAD for undrawn credit commitments and other off-balance sheet amounts are reported after the application of credit conversion factors.
Includes other off-balance sheet exposures such as letters of credit and guarantees.
Counterparty credit risk EAD reflects exposure amounts after netting. Collateral is included in EAD for repo-style transactions to the extent allowed by regulatory
guidelines. Exchange traded derivatives are included in Other sectors.
Includes residential mortgages and home equity lines of credit.
Includes credit cards, unsecured lines of credit and overdraft protection products.
Geographic profile is based on country of residence of the borrower.

2023 vs. 2022
Total credit risk exposure increased $62 billion or 3% from last year, primarily due to volume growth in loans and undrawn
commitments.

76

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Net International exposure by region and client type (1), (2)Table 45
As at
October 31

October 31

2023

2022

Asset type

Client type(Millions of Canadian dollars)

Loans
Outstanding

Europe (excluding
U.K.)
U.K.
Caribbean
Asia-Pacific
Other (4)$ 15,112 $ 19,204 $
7,144
23,9198,331
11,0296,746
36,150357
1,876

1,772 $ 2,271
534
3,131
381
186
1,695
1,083
332
20

$ 15,202 $ 5,518 $ 17,639 $
9,318
17,791
7,619
7,267
4,190
8,470
15,00425,344
5,326
427
1,693
465

Net International
exposure (5), (6)$ 37,690 $ 92,178 $

4,714 $ 6,691$ 47,218 $ 54,536 $ 39,519 $ 141,273 $ 155,771

(1)
(2)
(3)
(4)
(5)
(6)

Securities (3)Repo-styletransactions

Derivatives

Financials

Sovereign

Corporate

Total

38,359 $34,72819,92745,674
2,585

Total

57,75339,94919,68835,3383,043

Geographic profile is based on country of risk, which reflects our assessment of the geographic risk associated with a given exposure. Typically, this is the residence ofthe borrower.
Exposures are calculated on a fair value basis and net of collateral, which includes $326 billion against repo-style transactions (October 31, 2022 – $357 billion) and$15 billion against derivatives (October 31, 2022 – $14 billion).
Securities include $13 billion of trading securities (October 31, 2022 – $13 billion), $41 billion of deposits (October 31, 2022 – $56 billion), and $38 billion of investment
securities (October 31, 2022 – $35 billion).
Includes exposures in the Middle East, Africa, and Latin America.
Excludes $4,790 million (October 31, 2022 – $5,213 million) of exposures to supranational agencies.
Reflects $2,533 million of mitigation through credit default swaps, which are largely used to hedge single name exposures and market risk (October 31, 2022 –$2,233 million).

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

77

Residential mortgages and home equity lines of credit (insured vs. uninsured) (1)Residential mortgages and home equity lines of credit are secured by residential properties. The following table presents a
breakdown by geographic region.
Residential mortgages and home equity lines of credit

Table 46
As at October 31, 2023

(Millions of Canadian dollars,
except percentage amounts)

Region (4)CanadaAtlantic provinces
QuebecOntario
Alberta
Saskatchewan and
Manitoba
B.C. and territories

Home equity
lines of credit (3)Residential mortgages
Insured (2)8,474
11,83130,35918,840

44%
27
15
45

$

Total

56%
73
85
55

8,546 42
11,911 16

11,80362,47558
84

20,34974,386

1,749
7,048

Total Canada (5)U.S.
Other International

89,961 23––––

307,644
77
33,683 100
3,213 100

397,605
33,683
3,213

34,4992,090
1,538

Total International–

36,896 100

36,8963,628$ 434,501$ 38,127–$ 89,961 21%$ 344,540

79%$

19,23943,572
198,623
41,436

Total

10,76531,741
168,264
22,596

Total$

Uninsured

$

1,630
3,111
16,5584,403

As at October 31, 2022

(Millions of Canadian dollars,
except percentage amounts)

Region (4)CanadaAtlantic provinces
QuebecOntario
Alberta
Saskatchewan and
Manitoba
B.C. and territories

46%
29
17
47

8,847
12,290Total Canada (5)U.S.
Other International
Total International
Total

(2)
(3)

(4)

(5)

78

Insured (2)8,460
12,444
31,40919,663(1)

Home equity
lines of credit (3)Residential mortgages$

Uninsured

54%
71
83
53

43
17

11,80859,34757
83

20,655
71,637

1,940
7,386

93,113––24––

290,684
31,956
3,043

76
100
100

383,797
31,956
3,043

36,217
1,776
1,621

–

–

34,999100

34,9993,397

325,68378%

418,796$ 39,614

22%

$

$

$

18,51243,067
188,10941,817

Total

10,052
30,623
156,700
22,154$ 93,113

$

Total

$

1,659
3,300
17,0094,923

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices andProcedures).
Insured residential mortgages are mortgages whereby our exposure to default is mitigated by insurance through the Canadian
Mortgage and Housing Corporation or other private mortgage default insurers.
Includes $38,108 million and $19 million of uninsured and insured home equity lines of credit, respectively (October 31, 2022 –$39,591 million and $23 million, respectively), reported within the personal loan category. The amounts in the U.S. and Other
International include term loans collateralized by residential mortgages.
Region is based upon the address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador,
Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest
Territories and Yukon.
Total consolidated residential mortgages in Canada of $398 billion (October 31, 2022 – $384 billion) includes $12 billion (October 31, 2022 –$12 billion) of mortgages with commercial clients in Canadian Banking, of which $9 billion (October 31, 2022 – $9 billion) are insured
mortgages, and $18 billion (October 31, 2022 – $17 billion) of residential mortgages in Capital Markets, of which $18 billion (October 31,
2022 – $17 billion) are held for securitization purposes. All of the residential mortgages held for securitization purposes are insured(October 31, 2022 – all insured).

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Residential mortgages portfolio by amortization period (1)The following table provides a summary of the percentage of residential mortgages that fall within the remaining amortization
periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual
amount and/or higher frequency of payments.
Residential mortgages portfolio by amortization period

Table 47
As at

October 31

October 31

2023

2022

Canada (2)U.S. and other
International

Amortization period≤ 25 years> 25 years ≤ 30 years> 30 years ≤ 35 years> 35 years

57%
20
1
22

26%
74
–
–

55%
24
1
20

57%
16
2
25

25%
75
–
–

54%
21
2
23

Total

100%

100%

100%

100%

100%

100%

(1)

Total

CanadaU.S. and other
International

Total

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices andProcedures).
Our policy is to originate mortgages with amortization periods of 30 years or less. Amortization periods greater than 30 years reflect the
impact of increases in interest rates on our variable rate mortgage portfolios. For these loans, the amortization period resets to theoriginal amortization schedule upon renewal. We do not originate mortgage products with a structure that would result in negative
amortization, as payments on variable rate mortgages automatically increase to ensure accrued interest is covered.

(2)

Average LTV ratios (1)The following table provides a summary of our average LTV ratios for newly originated and acquired uninsured residential
mortgages and RBC Homeline Plan® products by geographic region, as well as the respective LTV ratios for our total Canadian
Banking residential mortgage portfolio outstanding.
Average LTV ratios

Table 48
For the year ended
October 31

October 31

2023
Uninsured2022
Uninsured

Residential
mortgages (2)RBC HomelinePlan® products (3)Residential
mortgages (2)RBC HomelinePlan® products (3)Average of newly originatedand acquired for the period,by region (4)Atlantic provinces
QuebecOntario
Alberta
Saskatchewan and Manitoba
B.C. and territories
U.S.
Other International

71%
70
70
72
73
68
74
69

71%
70
64
71
73
63
n.m.
n.m.

72%
72
70
73
73
68
75
72

73%
72
66
73
75
66
n.m.
n.m.

Average of newly originatedand acquired for theperiod (5), (6)

70%

66%

71%

68%

Total Canadian Banking
residential mortgages
portfolio (7)

55%

47%

52%

46%

(1)
(2)
(3)
(4)

(5)
(6)
(7)
n.m.

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices andProcedures).
Residential mortgages exclude residential mortgages within the RBC Homeline Plan® products.
RBC Homeline Plan® products are comprised of both residential mortgages and home equity lines of credit.
Region is based upon address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador, Prince
Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest
Territories and Yukon.
The average LTV ratio for newly originated and acquired uninsured residential mortgages and RBC Homeline Plan® products is calculated
on a weighted basis by mortgage amounts at origination.
For newly originated mortgages and RBC Homeline Plan® products, LTV is calculated based on the total facility amount for the residential
mortgage and RBC Homeline Plan® product divided by the value of the related residential property.
Weighted by mortgage balances and adjusted for property values based on the Teranet – National Bank National Composite House Price
Index.
not meaningful

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

79

Credit quality performance
The following credit quality performance tables and analysis provide information on loans, which represents loans, acceptancesand commitments, and other financial assets.
Gross impaired loans (GIL)

Table 49
As at and for the year ended
October 31

October 31

$

2023
1,905
514
1,285

$

2022
1,362
278
559

Total GIL

$

3,704

$

2,199

Impaired loans, beginning balance
Classified as impaired during the period (new impaired) (1)Net repayments (1)Amounts written off
Other (2)$2,199 $
3,959
(622)
(1,572)
(260)

2,308
1,711
(450)
(1,149)(221)

Impaired loans, balance at end of period

$

3,704

2,199

(Millions of Canadian dollars, except percentage amounts)

Personal & Commercial Banking
Wealth Management
Capital Markets

GIL as a % of related loans and acceptances
Total GIL as a % of related loans and acceptances
Personal & Commercial Banking
Canadian Banking
Caribbean Banking
Wealth Management (3)Capital Markets (3)
(1)

(2)
(3)

$

0.42%
0.31%
0.26%
3.45%
0.44%
0.89%

0.26%
0.23%
0.18%
3.93%
0.24%
0.39%

Certain GIL movements for Canadian Banking retail and wholesale portfolios are generally allocated to new impaired, as
Net repayments and certain Other movements are not reasonably determinable. Certain GIL movements for Caribbean
Banking retail and wholesale portfolios are generally allocated to Net repayments and new impaired, as Net repayments
and certain Other movements are not reasonably determinable.
Includes return to performing status during the period, recoveries of loans and advances previously written off, sold, andforeign exchange translation and other movements.
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.

2023 vs. 2022
Total GIL of $3,704 million increased $1,505 million or 68% from last year and the total GIL ratio of 42 bps increased 16 bps, due tohigher impaired loans in Capital Markets, Personal & Commercial Banking and Wealth Management.
GIL in Personal & Commercial Banking increased $543 million or 40%, primarily due to higher impaired loans in our Canadian
Banking retail and commercial portfolios. Higher impaired loans in our Canadian Banking commercial portfolios were in a few
sectors, mainly the consumer discretionary and real estate and related sectors.
GIL in Wealth Management increased $236 million or 85%, mainly driven by higher impaired loans in U.S. WealthManagement (including City National) in a few sectors, including the real estate and related and telecom and media sectors,
partially offset by lower impaired loans in the consumer discretionary sector.
GIL in Capital Markets increased $726 million, mainly due to higher impaired loans in the real estate and related and telecom
and media sectors, partially offset by lower impaired loans in the other services sector.
Allowance for credit losses

Table 50
As at
October 31

October 31

2023(Millions of Canadian dollars)Personal & Commercial Banking
Wealth Management (1)Capital Markets (1)$ACL on loans
ACL on other financial assets (2)

3,718
618
1,012

2022
$

5,348
18

3,200
383
598
4,181
33

Total ACL

$

5,366

$

4,214

ACL on loans is comprised of:RetailWholesale

$

2,591
1,609

$

2,285
1,227

$

4,200
1,148

$

3,512
669

ACL on performing loans
ACL on impaired loans(1)(2)

Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.
ACL on other financial assets mainly represents allowances on debt securities measured at FVOCI and amortized cost,accounts receivable and financial guarantees.

2023 vs. 2022
Total ACL of $5,366 million increased $1,152 million or 27% from last year, primarily reflecting an increase of $1,167 million in ACL
on loans.
80

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

ACL on performing loans of $4,200 million increased $688 million or 20%, mainly due to higher ACL in Personal & Commercial
Banking, reflecting unfavourable changes in credit quality and portfolio growth. Higher ACL in Wealth Management and CapitalMarkets also contributed to the increase.
ACL on impaired loans of $1,148 million increased $479 million or 72%, primarily due to higher ACL in Capital Markets andPersonal & Commercial Banking.
Market risk
Market risk is defined to be the impact of market prices upon our financial condition. This includes potential gains or losses
due to changes in market determined variables such as interest rates, credit spreads, equity prices, commodity prices, foreignexchange rates and implied volatilities.
The measures of financial condition impacted by market risk are as follows:1.

Positions whose revaluation gains and losses are reported in revenue, which includes:a) Changes in the fair value of instruments classified or designated as FVTPL, andb) Hedge ineffectiveness.

2.

CET1 capital, which includes:a) All of the above, plusb) Changes in the fair value of FVOCI securities where revaluation gains and losses are reported as OCI,c) Changes in the Canadian dollar value of investments in foreign subsidiaries, net of hedges, due to foreign exchangetranslation, andd) Changes in the fair value of employee benefit plan deficits.

3.

CET1 ratio, which includes:a) All of the above, plusb) Changes in RWA resulting from changes in traded market risk factors, andc) Changes in the Canadian dollar value of RWA due to foreign exchange translation.

4.

The economic value of the Bank, which includes:a) Points 1 and 2 above, plusb) Changes in the economic value of other non-trading positions, net interest income, and fee based income, as aresult of changes in market risk factors.

Market risk controls – FVTPL positions, including trading portfolios1
As an element of the ERAF, the Board approves our overall market risk constraints. GRM creates and manages the control
structure for FVTPL positions which are designed to ensure that business is conducted on a basis consistent with Board
requirements. The Market and Counterparty Credit Risk function within GRM is responsible for creating and managing thecontrols and governance procedures that are designed to ensure that risk taken is consistent with risk appetite constraints set
by the Board. These controls include limits on probabilistic measures of potential loss such as Value-at-Risk and stress tests as
defined below:
Value-at-Risk (VaR) is a statistical measure of potential loss for a financial portfolio computed at a given level ofconfidence and over a defined holding period. We measure VaR at the 99th percentile confidence level for price movements
over a one-day holding period using historic simulation of the last two years of equally weighted historic market data.
These calculations are updated daily with current risk positions, with the exception of certain less material positions thatare not actively traded and are updated on at least a monthly basis. Trading VaR captures potential loss for our trading
portfolio that excludes the impacts of non-trading FVTPL positions such as loan underwriting commitments. Total VaR
captures potential loss for all positions classified as FVTPL.
VaR is a statistical estimate based on historical market data and should be interpreted with knowledge of its limitations,which include the following:•
VaR will not be predictive of future losses if the realized market movements differ significantly from the historicalperiods used to compute it.
•
VaR projects potential losses over a one-day holding period and does not project potential losses for risk positions
held over longer time periods.
•
VaR is measured using positions at close of business and does not include the impact of trading and hedging activity
over the course of a day.
We validate our VaR measures through a variety of means – including subjecting the models to vetting and validation by agroup independent of the model developers and by back-testing the VaR against daily marked-to-market revenue to identify
and examine events in which actual outcomes in trading revenue exceed the VaR projections.
Stress tests – Our market risk stress testing program is used to identify and control risk due to large changes in market
prices and rates. We conduct stress testing daily on positions that are marked-to-market. The stress tests simulate both
historical and hypothetical events which are severe and long-term in duration. Historical scenarios are taken from actual
market events and range in duration up to 90 days. Examples include the COVID-19 Pandemic of 2020, Global Financial Crisisof 2008 and the Taper Tantrum of 2013. Hypothetical scenarios are designed to be forward-looking at potential future market
stresses, and are designed to be severe but plausible. We are constantly evaluating and refining these scenarios as market
conditions change. Stress results are calculated assuming an instantaneous revaluation of our positions with nomanagement action.
1

Trading portfolios are comprised of trading instruments in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline. Trading involves market-making,positioning and arbitrage activities conducted primarily within our Global Markets business in the Capital Markets segment.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

81

These measures are computed on all positions that are FVTPL for financial reporting purposes, with the exception of those in adesignated hedging relationship and those in our insurance businesses.
Market risk measures – FVTPL positions
Market risk measures*

Table 51
October 31, 2023

October 31, 2022 (1)For the year ended(Millions of Canadian dollars)

As atEquityForeign exchange
Commodities
Interest rate (2)Credit specific (3)Diversification (4)$Average

For the year ended

High

10 $
4
5
38
7
(35)

11 $ 26
3
25
5
8
32
49
5
8
(31)
n.m.

Low

$

6
2
4
20
4
n.m.

As at

$

AverageHigh

Low

20 $ 18 $ 30
3
4
7
6
5
6
31
29
65
5
7
9
(34)
(33)
n.m.

$

10
1
3
13
4
n.m.

Trading VaR

$

29

$

25

$

36

$

16

$

31

$

30

$

50

$

19

Total VaR (5)

$

121

$

51

$ 127

$

27

$

59

$

53

$

87

$

34

*
(1)
(2)
(3)
(4)
(5)
n.m.

This table represents an integral part of our 2023 Annual Consolidated Financial Statements.
Amounts have been revised from those previously presented to align with a trading VaR view.
General credit spread risk and funding spread risk associated with uncollateralized derivatives are included under interest rate VaR.
Credit specific risk captures issuer-specific credit spread volatility.
Trading VaR is less than the sum of the individual risk factor VaR results due to risk factor diversification.
The average total VaR for the year ended October 31, 2023 includes $14 million (October 31, 2022 – $11 million) related to loan underwriting commitments.
not meaningful

2023 vs. 2022
Average Trading VaR of $25 million decreased $5 million from last year, primarily driven by exposure changes in our equity
derivatives portfolio.
Average total VaR of $51 million remained stable. Total VaR was elevated as at October 31, 2023, primarily reflecting theimpact of economic hedges.
The following chart displays a bar graph of our daily trading revenue and a line graph of our daily market risk Trading VaR. We
incurred 1 day of net trading losses in 2023, largely associated with stresses in the U.S. regional banking sector in Q2 2023.
Trading revenue (teb), (1) and Trading VaR (2) (Millions of Canadian dollars)
80
60
40
20
0
-20
-40
-60
2

02

v
No

1, 2

3

02

1, 2

3
Jan

0,

3
pr

23

20

A

Trading Revenue (teb) (1)
(1)
(2)

82

Jul

31,

23

20

Trading VaR (2)Trading revenue (teb) amounts in the chart above exclude the impact of loan underwriting commitments.
VaR amounts in the chart above have been revised from those previously presented to reflect Trading VaR corresponding to our trading porfolios.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

t
Oc

31,

23

20

The following chart displays the distribution of daily trading revenue in 2023 and 2022 with 1 day of net trading losses in 2023 as
mentioned above and 4 days of net trading losses in 2022. The largest reported trading revenue was $56 million with an average
daily revenue of $17 million.

Frequency in Number of Days

Trading revenue for the year ended October 31, 2023 (teb), (1)
90
80
70
60
50
40
30
20
10
0

Daily net trading revenue (C$ millions) (1)

2023
(1)

2022

Trading revenue (teb) amounts in the chart above exclude the impact of loan underwriting commitments and structured entities.

Market risk measures for assets and liabilities of RBC Insurance®
We offer a range of insurance products to clients and hold investments to meet the future obligations to policyholders. The
investments which support actuarial liabilities are predominantly fixed income assets designated as FVTPL. Consequently,
changes in the fair values of these assets are recorded in the Consolidated Statements of Income and are largely offset bychanges in the fair value of the actuarial liabilities, the impact of which is reflected in PBCAE. As at October 31, 2023, we held
assets in support of approximately $12 billion of liabilities with respect to insurance obligations (October 31, 2022 – $12 billion).
Market risk controls – Interest Rate Risk in the Banking Book (IRRBB) positions2
IRRBB arises primarily from traditional customer-originated banking products such as deposits and loans, and includes
related hedges and interest rate risk from securities held for liquidity management purposes. Factors contributing to IRRBB
include mismatches between asset and liability repricing dates, relative changes in asset and liability rates in response tomarket rate scenarios, and other product features affecting the expected timing of cash flows, such as options to pre-payloans or redeem term deposits prior to contractual maturity. IRRBB sensitivities are regularly measured and reported, andsubject to limits and controls with independent oversight from GRM.
The Board approves the risk appetite for IRRBB, and the Asset Liability Committee (ALCO) and GRM provide ongoinggovernance through IRRBB risk policies, limits, operating standards and other controls. IRRBB reports are reviewed regularly
by GRM, ALCO, the GRC, the Risk Committee of the Board and the Board.
IRRBB measurement
To monitor and control IRRBB, we assess two primary metrics, Net Interest Income (NII) risk and Economic Value of Equity(EVE) risk, under a range of market shocks, scenarios, and time horizons. Market scenarios include currency-specific paralleland non-parallel yield curve changes, interest rate volatility shocks, and interest rate scenarios prescribed by regulators.
In measuring NII risk, detailed banking book balance sheets and income statements are dynamically simulated toestimate the impact of market stress scenarios on projected NII. Assets, liabilities and off-balance sheet positions are
simulated over various time horizons. The simulations incorporate maturities, renewals, and new originations along withprepayment and redemption behaviour. Product pricing and volumes are forecasted based on past experience to determine
response expectations under a given market shock scenario. EVE risk captures the market value sensitivity to changes inrates. In measuring EVE risk, deterministic (single-scenario) and stochastic (multiple-scenario) valuation techniques areapplied to spot position data. NII and EVE risks are measured for a range of market risk stress scenarios which include
extreme but plausible changes in market rates and volatilities. IRRBB measures assume continuation of existing hedge
strategies.
Management of NII and EVE risk is complementary and supports our efforts to generate a sustainable high-quality NII
stream. NII and EVE risks for specific units are measured daily, weekly or monthly depending on materiality, complexity andhedge strategy.
A number of assumptions affecting cash flows, product re-pricing and the administration of rates underlie the models
used to measure NII and EVE risk. The key assumptions pertain to the projected funding date of mortgage rate commitments,
fixed-rate loan prepayment behaviour, term deposit redemption behaviour, and the term and rate profile of non-maturity
deposits. All assumptions are derived empirically based on historical client behaviour and product pricing with considerationof possible forward-looking changes. All models and assumptions used to measure IRRBB are subject to independent
oversight by GRM.
Market risk measures – IRRBB Sensitivities
The following table shows the potential before-tax impact of an immediate and sustained 100 bps increase or decrease ininterest rates on projected EVE and 12-month NII, assuming no subsequent hedging. Interest rate risk measures are based on
current on and off-balance sheet positions which can change over time in response to business activity and management
actions.

2

IRRBB positions include the impact of derivatives in hedge accounting relationships, FVOCI securities used for interest rate risk management and economic hedges.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

83

Market risk – IRRBB measures*

Table 52
October 31

October 31

2023

2022

EVE risk(Millions of Canadian dollars)

Before-tax impact of:
100 bps increase in rates
100 bps decrease in rates*(1)

Canadiandollar impact$

NII risk (1)U.S. dollar
impact(1,445) $1,430(107) $
(77)

Total

Canadiandollar impact(1,552) $1,353

U.S. dollar
impact

381 $
(409)

270 $
(342)

Total

EVE risk

NII risk (1)651 $ (1,900) $ 781
(751)
1,709
(839)

This table represents an integral part of our 2023 Annual Consolidated Financial Statements.
Represents the 12-month NII exposure to an instantaneous and sustained shift in interest rates.

As at October 31, 2023, an immediate and sustained -100 bps shock would have had a negative impact to our NII of $751 million,
down from $839 million last year, and an immediate and sustained +100 bps shock would have had a negative impact to our EVE
of $1,552 million, down from $1,900 million last year. The change in NII sensitivity reflects a change in product mix and the change
in EVE sensitivity can be attributed to a reduction in the term of fixed rate assets. During 2023, NII and EVE risks remained withinapproved limits.
Market risk measures for other material non-trading portfolios
Investment securities carried at FVOCIWe held $128 billion of investment securities carried at FVOCI as at October 31, 2023, compared to $93 billion at the end of theprior year. We hold debt securities carried at FVOCI primarily as investments, as well as to manage liquidity risk and hedge
interest rate risk in our non-trading banking balance sheet. As at October 31, 2023, our portfolio of investment securities carried
at FVOCI is interest rate sensitive and would impact OCI by a pre-tax change in value of $5 million as measured by the change inthe value of the securities for a one basis point parallel increase in yields. The portfolio also exposes us to credit spread risk of apre-tax change in value of $28 million, as measured by the change in value for a one basis point widening of credit spreads. The
value of the investment securities carried at FVOCI included in our IRRBB measures as at October 31, 2023 was $125 billion. Ourinvestment securities carried at FVOCI also include equity exposures of $1 billion as at October 31, 2023, compared to $1 billion at
the end of the prior year.

Non-trading foreign exchange rate risk
Foreign exchange rate risk is the potential adverse impact on earnings and economic value due to changes in foreign currency
rates. Our revenue, expenses and income denominated in currencies other than the Canadian dollar are subject tofluctuations as a result of changes in the value of the average Canadian dollar relative to the average value of thosecurrencies. Our most significant exposure is to the U.S. dollar, due to our operations in the U.S. and other activities conductedin U.S. dollars. Our other significant exposure is to the British pound due to our activities conducted internationally in thiscurrency. A strengthening or weakening of the Canadian dollar compared to the U.S. dollar and British pound could reduce or
increase, as applicable, the translated value of our foreign currency denominated revenue, expenses and earnings and could
have a significant effect on the results of our operations. We are also exposed to foreign exchange rate risk arising from ourinvestments in foreign operations. For unhedged equity investments, when the Canadian dollar appreciates against othercurrencies, the unrealized translation losses on net foreign investments decreases our shareholders’ equity through the othercomponents of equity and decreases the translated value of the RWA of the foreign currency-denominated asset. The reverse
is true when the Canadian dollar depreciates against other currencies. Consequently, we consider these impacts in selecting
an appropriate level of our investments in foreign operations to be hedged.
Derivatives related to non-trading activity
Derivatives are also used to hedge market risk exposure unrelated to our trading activity. Hedge accounting is elected whereapplicable. These derivatives are included in our IRRBB measures and other internal non-trading market risk measures. We useinterest rate swaps to manage our IRRBB, funding and investment activities. Interest rate swaps are also used to hedge changes
in the fair value of certain fixed-rate instruments. We also use foreign exchange derivatives to manage our exposure to equity
investments in subsidiaries that are denominated in foreign currencies, particularly the U.S. dollar, British Pound, and Euro.
For further details on the application of hedge accounting and the use of derivatives for hedging activities, refer to Notes 2 and 9of our 2023 Annual Consolidated Financial Statements.

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Management’s Discussion and Analysis

Linkage of market risk to selected balance sheet items
The following tables provide the linkages between selected balance sheet items with positions included in our trading market risk
and non-trading market risk disclosures, which illustrates how we manage market risk for our assets and liabilities throughdifferent risk measures:
Linkage of market risk to selected balance sheet items

Table 53
As at October 31, 2023

Market risk measure(Millions of Canadian dollars)

Assets subject to market risk
Cash and due from banks
Interest-bearing deposits with banks
Securities
Trading
Investment, net of applicable allowance
Assets purchased under reverse repurchaseagreements and securities borrowed
Loans
RetailWholesale
Allowance for loan losses
Segregated fund net assets
Other
Derivatives
Other assets
Assets not subject to market risk (3)Total assets
Liabilities subject to market risk
Deposits
Segregated fund liabilities
Other
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loanedDerivatives
Other liabilities
Subordinated debentures
Liabilities not subject to market risk (4)Total liabilities

Balance sheet
amount Traded risk (1)
$

(1)
(2)
(3)
(4)

– $
1

Non-traded risk
primary risk sensitivity

61,98971,085Interest rate
Interest rate

190,151
219,579

171,483–

18,668219,579

Interest rate, credit spread
Interest rate, credit spread, equity

340,191

304,672

35,519Interest rate

569,951
287,826(5,004)
2,760

–
3,134
–
–

569,951
284,692(5,004)2,760Interest rate
Interest rate
Interest rate
Interest rate

142,450
108,178
15,835139,011
8,699

3,439
99,479Interest rate, foreign exchangeInterest rate$

2,004,992 $

627,000 $1,362,157$

1,231,687 $
2,760

51,025 $–1,180,662
2,760

33,651

33,55596335,238
142,629
109,533
11,386
20,348

312,551
130,094
12,491–

22,687
12,53597,042
11,386$

1,887,232 $

539,716 $$2,004,992

Total equity
Total liabilities and equity

61,989 $71,086

Non-tradedrisk (2)Interest rate
Interest rate

Interest rate
Interest rate, foreign exchangeInterest rate
Interest rate

1,327,168

117,760

Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading
portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.
Non-traded risk includes positions used in the management of IRRBB and other non-trading portfolios. Other material non-trading portfolios include positions from RBC
Insurance® and investment securities, net of applicable allowance, not included in IRRBB.
Assets not subject to market risk include physical and other assets.
Liabilities not subject to market risk include payroll related and other liabilities.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

85

As at October 31, 2022 (1)Market risk measure
Balance sheet
amount Traded risk (2)(Millions of Canadian dollars)

Assets subject to market risk
Cash and due from banks
Interest-bearing deposits with banks
Securities
Trading
Investment, net of applicable allowance
Assets purchased under reverse repurchaseagreements and securities borrowed
Loans
RetailWholesale
Allowance for loan losses
Segregated fund net assets
Other
Derivatives
Other assets
Assets not subject to market risk (4)Total assets
Liabilities subject to market risk
Deposits
Segregated fund liabilities
Other
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loanedDerivatives
Other liabilities
Subordinated debentures
Liabilities not subject to market risk (5)Total liabilities

$

(1)
(2)
(3)
(4)
(5)

– $
2

Non-traded risk
primary risk sensitivity

72,397108,009

Interest rate
Interest rate148,205
170,018

131,071–

17,134
170,018

Interest rate, credit spread
Interest rate, credit spread, equity

317,845

287,454

30,391

Interest rate549,751
273,967(3,753)
2,638

26
5,921
–
–

549,725
268,046(3,753)
2,638Interest rate
Interest rate
Interest rate
Interest rate

154,439
109,629
14,072

151,244
8,826

3,195
100,803

Interest rate, foreign exchangeInterest rate$

1,917,219 $

584,544 $

1,318,603$

1,208,814 $
2,638

39,000 $–1,169,814
2,638

35,51135,48229

273,947
153,491
102,881
10,025
21,737

264,025
139,406
10,594–

9,922
14,08592,287
10,025

1,809,044 $

488,507 $$Total equity
Total liabilities and equity

72,397 $108,011

Non-tradedrisk (3)Interest rate
Interest rate

Interest rate
Interest rate, foreign exchangeInterest rate
Interest rate

1,298,800

108,175$

1,917,219

Amounts have been revised from those previously presented to align with the definition of trading risk in accordance with OSFI’s CAR Guidelines.
Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading
portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.
Non-traded risk includes positions used in the management of IRRBB and other non-trading portfolios. Other material non-trading portfolios include positions from RBC
Insurance® and investment securities, net of applicable allowance, not included in IRRBB.
Assets not subject to market risk include physical and other assets.
Liabilities not subject to market risk include payroll related and other liabilities.

Liquidity and funding risk
Liquidity and funding risk (liquidity risk) is the risk that we may be unable to generate sufficient cash or its equivalents in atimely and cost-effective manner to meet our commitments. Liquidity risk arises from mismatches in the timing and value of
on-balance sheet and off-balance sheet cash flows.
Governance of liquidity risk
Our liquidity risk management activities are conducted in accordance with internal frameworks and policies, including theEnterprise Risk Management Framework (ERMF), the Enterprise Risk Appetite Framework (ERAF), the Enterprise Liquidity Risk
Management Framework (LRMF), the Enterprise Liquidity Risk Policy, and the Enterprise Pledging Policy. Collectively, ourframeworks and policies establish liquidity and funding management requirements appropriate for the execution of ourstrategy and ensuring liquidity risk remains within our risk appetite.
Liquidity risk objectives, policies and risk appetite are reviewed regularly, and updated to reflect changes in industry
practice and relevant regulatory guidance. Enterprise policies are supported by subsidiary, operational, desk and productlevel policies and standards that specify risk control elements, such as parameters, methodologies, limits and authorities
governing the measurement and management of liquidity. Management practices, parameters, models and methodologies arealso subject to regular review, and are updated to reflect market conditions and business mix. Stress testing is employed toassess the robustness of the control framework and inform liquidity contingency plans.

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Responsibilities for liquidity risk oversight and management
The Board, the Risk Committee of the Board, the Group Risk committee (GRC), the Asset Liability Committee (ALCO), and the
Policy Review Committee (PRC) are accountable for the identification, assessment, control, monitoring and oversight ofliquidity risk. The GRC, PRC and/or the ALCO review liquidity reporting and policies prior to review by the Board or its
committees.
•
The Board, the Risk Committee of the Board, the GRC and the ALCO regularly review information on our consolidated
liquidity position;•
The PRC approves the Liquidity Risk Policy, which establishes minimum risk control elements in accordance with theBoard-approved risk appetite and the LRMF, and the Pledging Policy, which outlines the requirements and authorities forthe management of our pledging activities;•
The ALCO annually approves the Enterprise Liquidity Contingency Plan (ELCP) and provides strategic direction andoversight to Corporate Treasury, other functions, and business segments on the management of liquidity and funding.
In addition to our committee oversight framework, liquidity risk management activities are subject to the three lines ofdefence governance model. Corporate Treasury, the first line of defence for the management of liquidity risk, is subject toindependent second line challenge and oversight by GRM. RBC Internal Audit is the third line of defence. The three lines ofdefence are independent of the business whose activities generate liquidity risks.
Liquidity risk mitigation strategies and techniques
Our liquidity management policies and practices are designed to ensure the soundness of our liquidity position. Our liquidity
profile is structured to ensure that we have sufficient liquidity to satisfy current and prospective commitments in both normal
and stressed conditions. For this purpose, we employ the following liquidity risk mitigation strategies and techniques:•
Maintaining a sufficient buffer of cash, central bank reserves, and unencumbered marketable securities, supported by ademonstrated capacity to monetize these securities during stress;•
Access to a broad range of funding sources, including a stable base of core client deposits and a diversified wholesalefunding mix;•
Access to central bank funding facilities in Canada and the U.S., and select other jurisdictions in which we operate;•
Timely and granular risk measurement and reporting to control and monitor liquidity sources and uses, and inform liquidity
risk management decisions;•
A comprehensive program for liquidity stress testing and crisis management;•
Governance of pledging activity through limits and designated liquid asset buffers to address potential increased pledging
activity;•
Achieving an appropriate balance between the level of exposure allowed under our risk appetite and the cost of risk
mitigation;•
Transparent liquidity transfer pricing and cost allocation mechanisms to align risk management with business strategies;
and•A three-lines-of-defence governance model providing effective oversight and challenge of liquidity risk strategies, metrics,
assumptions, and controls.
Our dedicated liquid asset portfolios are managed and controlled in accordance with internal policies and are subject tominimum asset quality and other relevant requirements (e.g., term to maturity, diversification, and eligibility for central bankadvances). These securities, along with other unencumbered liquid assets held for trading or other activities, contribute to our
liquidity reserve, as reflected in the liquidity disclosures below.

Risk tolerance
Our liquidity risk appetite is reviewed at a minimum annually by ALCO, GRC, and the Risk Committee of the Board before it isrecommended for approval to the Board. Risk appetite, a key element of our enterprise risk management framework, isdefined as the amount and type of risk that RBC is able and willing to take in pursuit of its business objectives.
Risk measurement and internal liquidity reporting
We maintain robust liquidity risk measurement capabilities to support timely and frequent reporting of information for the
management of our liquidity position and oversight of risk. This reporting, which includes internal and regulatory metrics, isused to monitor adherence with our risk appetite and limits, and position relative to regulatory minimums. Regulatory metrics
used to manage and control liquidity risk include OSFI’s Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) andNet Cumulative Cash Flow (NCCF). The specificity with which we measure and manage liquidity allows us to make ongoing
informed assessments of the demands and mobility of liquidity, considering currency requirements, access to foreignexchange markets and commitments, and expectations under local regulations.
Internal assessments of liquidity risk include application of scenario-specific assumptions against our assets andliabilities, and various off-balance sheet commitments and obligations to project cash flows over varying time horizons anddegrees of stress. For example, certain government bonds could be quickly and easily converted to cash without significant
loss of value. In contrast, lower-rated securities may not be deemed appropriate sources of liquidity in times of stress, or may
incur higher potential monetization costs. While relationship-based deposits contractually can be withdrawn immediately, inpractice, these balances can be relatively stable sources of funding depending on several factors, such as the nature of theclient and their intended use. Assumptions and methodologies informing our assessment of liquidity risk are periodicallyreviewed and validated to ensure alignment with our operating environment, expected economic and market conditions,rating agency preferences, regulatory requirements and generally accepted industry practices.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

87

To manage liquidity risk within our liquidity risk appetite, we set limits on various metrics over a range of time horizons,jurisdictions and currencies. We also consider various levels of stress conditions in our development of appropriate
contingency, recovery and resolution plans. Our liquidity risk measurement and control activities cover multiple areas:

Structural (longer-term) liquidity risk
We use both internal and regulatory metrics to manage and control the structural alignment between long-term illiquid assets,
the availability of core relationship deposits and longer-term funding. Conversely, we aim to align the use of shorter-term
wholesale funding with assets of equivalent liquidity-generating potential.
Tactical (shorter-term) liquidity risk
To address potential immediate cash flow risks during periods of stress, we use short-term net cash flow limits to control risk
at the material unit, subsidiary and currency levels. Net cash flow positions are determined by applying internally-derived risk
assumptions and parameters to known and anticipated cash flows for all material unencumbered assets, liabilities andoff-balance sheet activities. Additional product-level controls and limits are employed to manage concentration risk andperceived market capacity limitations for more sensitive liquidity sources and uses. We also control tactical liquidity byadhering to relevant regulatory standards, such as LCR.
Stress testing
Our comprehensive stress testing program informs internal assessments of the sufficiency of liquid assets, and whether they
are adequately pre-positioned and accessible to meet stressed liquidity needs. Our stress tests, which include elements of
scenario and sensitivity analyses, measure our prospective exposure to systemic and RBC-specific events over periods oftime. Different degrees of severity are considered for each type of crisis with some scenarios reflecting multiple downgrades
to our credit ratings.
Contingency liquidity risk management and funding plans
Contingency liquidity risk planning assesses the impact of sudden stress on our liquidity risk position and identifies a range ofpotential mitigating actions and plans. Corporate Treasury maintains the Enterprise Liquidity Contingency Plan (ELCP) andregional liquidity contingency plans (LCPs) that identify potential sources of stress and guide our responses to liquidity crises.
Potential sources of stress are calibrated based on relevant historical experience and resulting contingent funding needs,
including those from draws on committed credit and liquidity lines, demands for increased collateral and deposit run-offs. The
ELCP also identifies alternative liquidity sources and considerations for their use.
Additionally, under the leadership of Corporate Treasury, enterprise and regional Liquidity Crisis Teams (LCTs) each meet
regularly to assess our liquidity status, review, and approve the LCPs and during times of stress, provide linkages to the frontline and other functions to support effective and coordinated crisis management and oversight. Enterprise and local LCTs
include members from key business segments, GRM, Finance, Operations, and Communications. The liquidity statusassessment and monitoring process informs management, the Board and regulatory agencies of our assessment of internaland external events and their potential implications on liquidity risk.
Liquidity reserve and asset encumbrance
The following tables provide summaries of our liquidity reserve and asset encumbrance. To varying degrees, unencumberedassets represent a ready source of funding. Unencumbered assets are the difference between total and encumbered assets fromboth on- and off-balance sheet sources. Encumbered assets include: (i) bank-owned liquid assets that are either pledged ascollateral (e.g., repo financing and derivative pledging) or not freely available due to regulatory or internal policy requirements(e.g., earmarked to satisfy mandatory reserve or regional capital adequacy requirements and to maintain continuous access to
payment and settlement systems); (ii) securities received as collateral from securities financing and derivative transactions
which have either been re-hypothecated where permissible (e.g., to obtain financing through repos or to cover securities soldshort) or have no liquidity value since re-hypothecation is prohibited; and (iii) illiquid assets that have been securitized and soldinto the market or that have been pledged as collateral in support of structured term funding vehicles. As per our liquidity
management framework and practice, encumbered assets are not considered a source of liquidity.

Liquidity reserve
Our liquidity reserve consists only of available unencumbered liquid assets. Although unused wholesale funding capacity could
be another potential source of liquidity, it is excluded in the determination of the liquidity reserve.

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Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Liquidity reserve

Table 54
As at October 31, 2023
Securities
received ascollateral fromsecurities
financing andderivativetransactions

Bank-owned
liquid assets(Millions of Canadian dollars)

Cash and deposits with banks (1)Securities issued or guaranteed by sovereigns, central
banks or multilateral development banks (2)Other securities
Other liquid assets (3)$Total liquid assets$

135,353$

325,002130,20931,706–

Total liquid
assets$135,353

363,377
118,651–

688,379
248,860
31,706

482,028$1,104,298

622,270$

Bank-owned
liquid assets

Securities
received ascollateral fromsecurities
financing andderivativetransactions

Encumberedliquid assets

$

3,329

Unencumberedliquid assets$

425,109
153,700
28,953$132,024
263,270
95,1602,753

611,091$493,207

Encumberedliquid assets

Unencumberedliquid assets

As at October 31, 2022

(Millions of Canadian dollars)

Cash and deposits with banks
Securities issued or guaranteed by sovereigns, central
banks or multilateral development banks (2)Other securities
Other liquid assets (3)$Total liquid assets$

180,408$

246,916
110,057
42,090579,471$–

Total liquid
assets$180,408

326,089
119,129–573,005
229,186
42,090445,218$ 1,024,689

$

3,601

$

373,893
135,349
40,318$553,161

176,807
199,11293,837
1,772$

471,528

As at
October 31

October 31

Royal Bank of Canada
Foreign branches
Subsidiaries

2023$ 210,191
79,947203,069$2022
186,855
90,910193,763

Total unencumbered liquid assets$$

471,528(Millions of Canadian dollars)

(1)
(2)
(3)

493,207

Includes balances that are classified as held for sale and presented in Other assets. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial
Statements.
Includes liquid securities issued by provincial governments and U.S. government-sponsored entities working under U.S. Federal government’s conservatorship(e.g., Federal National Mortgage Association and Federal Home Loan Mortgage Corporation).
Encumbered liquid assets amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.

The liquidity reserve is typically most affected by routine flows of retail and commercial client banking activities, where liquid
asset portfolios reflect changes in deposit and loan balances, as well as business strategies and client flows related to theactivities in Capital Markets. Corporate Treasury also affects liquidity reserves through the management of funding issuances,which could result in timing differences between when debt is issued and funds are deployed into business activities.
2023 vs. 2022
Total unencumbered liquid assets increased $22 billion or 5% from last year, mainly due to an increase in on-balance sheet
securities reflecting higher client deposit levels, partially offset by a decrease in cash and deposits with banks.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

89

Asset encumbrance
The table below provides a summary of our on- and off-balance sheet amounts for cash, securities and other assets,
distinguishing between those that are encumbered, and those available for sale or use as collateral in secured fundingtransactions. Other assets, such as mortgages and credit card receivables, can also be monetized, albeit over longer timeframes
than those required for marketable securities. As at October 31, 2023, our unencumbered assets available as collateral comprised
24% of total assets (October 31, 2022 – 24%).
Asset encumbrance

Table 55
As at

Encumbered(Millions of Canadian dollars)

Pledged ascollateral

(1)
(2)
(3)
(4)
(5)
(6)

October 31

2023

2022

Unencumbered

Other (1)Cash and deposits$– $ 3,329
with banks (4)Securities
Trading
99,990–Investment, net of
applicable allowance
7,752–
Assets purchased underreverse repurchaseagreements and securities
495,233
27,343borrowed (5)LoansRetailMortgage securities
26,365–Mortgage loans
69,802–Non-mortgage loans
6,775–
Wholesale––
Allowance for loan losses––
Segregated fund net assets
–
–
Other
Derivatives––
28,953–
Others (6)Total assets

October 31$ 734,870 $ 30,672

Available as
collateral (2)$$132,024 $Encumbered

Other (3)

– $

Total

135,353

Pledged ascollateral$

Unencumbered

Other (1)

– $

3,601

Available as
collateral (2)$176,807 $Other (3)

– $

Total

180,408

100,5172,252

202,759

62,941–91,7383,303

157,982

211,827–

219,579

7,996–

162,022–

170,018

6,876

1,862

531,314456,292

21,709

9,192

3,409

490,602

28,07937,313–
10,056–––272,942
128,675
278,052(5,004)2,760

54,444
380,057
135,450
288,108(5,004)2,760

28,20862,905
6,066
–
–
–

–
–
–
–
–
–

27,263
26,696
–
9,119
–
–

–
273,724
124,889
264,848(3,753)
2,638

55,471
363,325
130,955
273,967(3,753)
2,638

–
2,753

142,450
89,747

142,450
121,453–
40,318

–
–

–
1,772

154,439
81,611

154,439
123,701

529,445 $ 913,736 $ 2,208,723$ 664,726 $ 25,310$

504,609 $ 905,108 $ 2,099,753

Includes assets restricted from use to generate secured funding due to legal or other constraints.
Represents assets that are immediately available for use as collateral, including NHA MBS, our unencumbered mortgage loans that qualify as eligible collateral at FHLB,
as well as loans that qualify as eligible collateral for discount window facility available to us and lodged at the FRBNY.
Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but would not be considered immediately available.
Includes balances that were classified as held for sale and presented in Other assets. For further details, refer to Note 6 of our 2023 Annual Consolidated Financial
Statements.
Includes bank-owned liquid assets and securities received as collateral from off-balance sheet securities financing, derivative transactions, and margin lending. Includes$27 billion (October 31, 2022 – $22 billion) of collateral received through reverse repurchase transactions that cannot be rehypothecated in its current legal form.
The Pledged as collateral amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.

2023 vs. 2022
Total unencumbered assets available as collateral have increased $25 billion from last year, mainly due to an increase in
on-balance sheet securities as well as higher available loan balances eligible as collateral at FHLB. These factors were partially
offset by a decrease in cash and deposits with banks.
Funding

Funding strategy
Maintaining a diversified funding base is a key strategy for managing our liquidity risk profile.
Core funding, comprising capital, longer-term wholesale liabilities and a diversified pool of personal as well as the stable
portion of our commercial and institutional deposits, is the foundation of our structural liquidity position.
Wholesale funding activities are well-diversified by geography, investor segment, instrument, currency, structure, andmaturity. We maintain an ongoing presence in different funding markets, which allows us to continuously monitor market
developments and trends, identify opportunities and risks, and take appropriate and timely actions.
We continuously evaluate opportunities to expand into new markets and untapped investor segments since
diversification expands our wholesale funding flexibility, minimizes funding concentration and dependency, and generally
reduces financing costs.
We regularly assess our funding concentration and have implemented limits on certain funding sources to support
diversification of our funding base.
Deposit and funding profile
As at October 31, 2023, relationship-based deposits, which are the primary source of funding for retail and commercial lending,were $844 billion or 52% of our total funding (October 31, 2022 – $819 billion or 54%). The remaining portion is comprised of shortand long-term wholesale funding.
Funding for highly liquid assets consists primarily of short-term wholesale funding that reflects the monetization period of
those assets. Long-term wholesale funding is used mostly to fund less liquid wholesale assets and to support liquid asset buffers.
Senior long-term debt issued by the bank on or after September 23, 2018, that has an original term greater than 400 days andis marketable, subject to certain exceptions, is subject to the Canadian Bank Recapitalization (Bail-in) regime. Under the Bail-in
regime, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable,
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Management’s Discussion and Analysis

the Governor in Council may, upon a recommendation of the Minister of Finance that he or she is of the opinion that it is in the
public interest to do so, grant an order directing the Canada Deposit Insurance Corporation (CDIC) to convert all or a portion ofcertain shares and liabilities of that bank into common shares. As at October 31, 2023, the notional value of issued andoutstanding long-term debt subject to conversion under the Bail-in regime was $106 billion (October 31, 2022 – $85 billion).
For further details on our wholesale funding, refer to the Composition of wholesale funding tables below.

Long-term debt issuanceDuring 2023, we continued to experience favourable unsecured wholesale funding access and pricing. We issued, either directlyor through our subsidiaries, unsecured long-term funding of $44 billion in various currencies and markets.
We use residential mortgage and credit card securitization programs as a source of funding and for liquidity and asset/liability
management purposes. Our total secured long-term funding includes outstanding MBS sold, covered bonds that arecollateralized with residential mortgages and securities backed by credit card receivables.
For further details, refer to the Off-balance sheet arrangements section.
Long-term funding sources* (1)Table 56
As at
October 31

Unsecured long-term funding
Secured long-term funding
Subordinated debentures*(1)

October 31

2023(Millions of Canadian dollars)2022$ 139,882
74,72012,038$119,241
68,953
10,639$ 226,640$

198,833

This table represents an integral part of our 2023 Annual Consolidated Financial Statements.
Based on original term to maturity greater than 1 year.

The following table summarizes our registered programs and their authorized limits by geography.
Programs by geography

Table 57

CanadaU.S.

Europe/Asia• Canadian Shelf Program – $25 billion• U.S. Shelf Program – US$50 billion• European Debt Issuance Program – US$75 billion• Global Covered Bond Program – €75 billion• Japanese Issuance Programs – ¥1 trillion

We also raise long-term funding using Canadian Senior Notes, Kangaroo Bonds (issued in the Australian domestic market byforeign firms) and Yankee Certificates of Deposit (issued in the U.S. domestic market by foreign firms).
As presented in the following charts, our current long-term debt profile is well-diversified by both currency and product.
Long-term debt (1) – funding mix by currency of issuanceLong-term debt (1) – funding mix by product
MBS/CMB (2)
6%

Euro
20%

Covered Bonds
24%

U.S. dollar
45%

Cards
securitization
3%

Other
11%

Subordinateddebentures5%
Unsecuredfunding62%

Canadian dollar
24%

(1)

Includes unsecured and secured long-term funding and subordinateddebentures with an original term to maturity greater than 1 year

(1)
(2)

Includes unsecured and secured long-term funding and subordinateddebentures with an original term to maturity greater than 1 year
Mortgage-backed securities and Canada Mortgage Bonds

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

91

The following table shows the composition of our wholesale funding based on remaining term to maturity:
Composition of wholesale funding (1)Table 58
As at October 31, 2023

(Millions of Canadian dollars)Less than
1 month

1 to 3months3 to 6months6 to 12months4,606 $
10,130
4,533
43
1,343
–
–
–
8,918

460 $
319 $
355 $
7,020
11,85827,029
3,829
6,354
2,155
6,311
133
18,828
1,898
2,081
3,343
530
375
1,484
3,236
–
1,685
–
–
1,500
5,098
2,293
2,462

Less than
1 year
sub-total

1 year to 2 years and2 years
greater

Total

Deposits from banks (2)Certificates of deposit and commercial paper
Asset-backed commercial paper (3)Senior unsecured medium-term notes (4)Senior unsecured structured notes (5)Mortgage securitization
Covered bonds/asset-backed securities (6)Subordinated liabilities
Other (7)$5,740 $
– $
– $
5,740
56,037
69–
56,106
16,871––
16,871
25,315
22,79054,070102,175
8,665
5,495
15,74429,904
2,389
2,225
9,607
14,221
4,921
10,84444,73360,498
1,500
2,748
7,791
12,03918,771
14,05890
32,919Total$ 29,573 $ 28,382 $ 23,413 $ 58,841 $ 140,209 $ 58,229 $ 132,035 $ 330,473

Of which:– Secured– Unsecured$ 10,861 $ 10,124 $ 7,483 $ 5,324 $ 33,792 $ 13,069 $ 54,340 $ 101,201
18,712
18,25815,93053,517
106,417
45,16077,695229,272

As at October 31, 2022
Less than
1 month(Millions of Canadian dollars)

Deposits from banks (2)Certificates of deposit and commercial paper
Asset-backed commercial paper (3)Senior unsecured medium-term notes (4)Senior unsecured structured notes (5)Mortgage securitization
Covered bonds/asset-backed securities (6)Subordinated liabilities
Other (7)$Total
Of which:– Secured– Unsecured
(1)
(2)
(3)
(4)
(5)
(6)
(7)

92

1 to 3months3 to 6months6 to 12months5,758 $
34 $311 $1,766 $
9,482
16,57523,676
39,674
3,488
2,373
6,646
722
375
5,968
2,846
13,189
404
721
2,136
4,091
–
1,238
421
2,614
–
1,016
1,960
2,838
60
–
–
110
7,241
2,934
8,673
4,387

Less than
1 year
sub-total

1 year to
2 years

2 years andgreater

Total

– $
–
323
48,556
9,898
9,697
42,194
8,986
409

7,869
89,407
13,552
90,042
19,613
16,372
52,583
10,63933,863$ 26,808 $ 30,859 $ 46,669 $ 69,391 $

173,727 $ 40,150 $ 120,063 $

333,940$

38,574 $6,977 $
135,153
33,17398,156
235,784

9,030 $
6,641 $ 15,367 $
7,536 $
17,77824,21831,302
61,855

7,869 $
– $89,407–
13,229–22,378
19,108
7,352
2,363
4,273
2,402
5,814
4,575
170
1,483
23,235
10,21952,605 $67,458

Excludes bankers’ acceptances and repos.
Excludes deposits associated with services we provide to banks (e.g., custody, cash management).
Only includes consolidated liabilities, including our collateralized commercial paper program.
Includes deposit notes.
Includes notes where the payout is tied to movements in foreign exchange, commodities and equities.
Includes credit card and mortgage loans.
Includes tender option bonds (secured) of $5,104 million (October 31, 2022 – $6,038 million), bearer deposit notes (unsecured) of $4,529 million (October 31, 2022 –$3,478 million), floating rate notes (unsecured) of $1,675 million (October 31, 2022 – $2,145 million), other long-term structured deposits (unsecured) of $16,896 million(October 31, 2022 – $12,411 million), and FHLB advances (secured) of $4,507 million (October 31, 2022 – $9,609 million), and wholesale guaranteed interest certificates of$208 million (October 31, 2022 – $182 million). Bearer deposit notes (unsecured), floating rate notes (unsecured) and wholesale guaranteed interest certificates amounts
have been revised from those previously presented.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Credit ratings
Our ability to access unsecured funding markets and to engage in certain collateralized business activities on a cost-effective
basis are largely dependent on maintaining competitive credit ratings. Credit ratings and outlooks provided by rating agencies
reflect their views and methodologies. Ratings are subject to change, based on a number of factors including, but not limited to,
our financial strength, competitive position, liquidity and other factors not completely within our control.
The following table presents our major credit ratings:
Credit ratings (1)Table 59
As at November 29, 2023
Short-term debt Legacy senior long-term debt (2) Senior long-term debt (3) Outlook

Moody’s (4)Standard & Poor’s (5)Fitch Ratings (6)DBRS (7)
(1)

(2)
(3)
(4)
(5)
(6)
(7)

P-1
A-1+
F1+
R-1 (high)

Aa1
AAAA
AA (high)

A1
A
AAAA

stablestablestablestableCredit ratings are not recommendations to purchase, sell or hold a financial obligation in as much as they do not comment on market price or suitability
for a particular investor. Ratings are determined by the rating agencies based on criteria established from time to time by them, and are subject torevision or withdrawal at any time by the rating organization.
Includes senior long-term debt issued prior to September 23, 2018 and senior long-term debt issued on or after September 23, 2018 which is excluded fromthe Bail-in regime.
Includes senior long-term debt issued on or after September 23, 2018 which is subject to conversion under the Bail-in regime.
On November 6, 2023, Moody’s affirmed our ratings with stable outlook.
On May 25, 2023, Standard & Poor’s affirmed our ratings with a stable outlook.
On June 20, 2023, Fitch Ratings affirmed our ratings with a stable outlook.
On May 12, 2023, DBRS affirmed our ratings with a stable outlook.

Additional contractual obligations for rating downgrades
We are required to deliver collateral to certain counterparties in the event of a downgrade from our current credit rating. The
following table shows the additional collateral obligations required at the reporting date in the event of a one-, two- or threenotch downgrade. These additional collateral obligations are incremental requirements for each successive downgrade and do
not represent the cumulative impact of multiple downgrades. The amounts reported change periodically due to several factors,
including the transfer of trading activity to centrally cleared financial market infrastructures and exchanges, the expiration oftransactions with downgrade triggers, the imposition of internal limitations on new agreements to exclude downgrade triggers,
as well as normal course mark-to-market. There is no outstanding senior debt issued in the market that contains rating triggers
that would lead to early prepayment of principal.
Additional contractual obligations for rating downgrades

Table 60
As at
October 31

October 31

2023(Millions of Canadian dollars)

Contractual derivatives funding or margin requirements
Other contractual funding or margin requirements (1)
(1)

2022

One-notch
downgrade

Two-notch
downgrade

Three-notch
downgrade

One-notch
downgrade

Two-notch
downgrade

Three-notch
downgrade

$

$

$

$

$

$

217
41

138
57

199
42

236
38

146
21

304
25

Includes GICs issued by our municipal markets business out of New York.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

93

Liquidity Coverage Ratio (LCR)
The LCR is a Basel III metric that measures the sufficiency of high-quality liquid assets (HQLA) available to meet liquidity needs
over a 30-day period in an acute stress scenario. The BCBS and OSFI regulatory minimum coverage level for LCR is 100%.
OSFI requires Canadian banks to disclose the LCR using the standard Basel disclosure template and calculated using the
average of daily LCR positions during the quarter.
Liquidity coverage ratio common disclosure template (1)Table 61
For the three months ended
October 31

2023(Millions of Canadian dollars, except percentage amounts)

Total unweighted
value (average) (2)High-quality liquid assets
Total high-quality liquid assets (HQLA)
Cash outflows
Retail deposits and deposits from small business customers, of which:Stable deposits (3)Less stable deposits
Unsecured wholesale funding, of which:Operational deposits (all counterparties) and deposits in networks of cooperativebanks (4)Non-operational deposits
Unsecured debt
Secured wholesale funding
Additional requirements, of which:Outflows related to derivative exposures and other collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Other contractual funding obligations (5)Other contingent funding obligations (6)$360,167
121,924
238,243
407,280

Total cash inflows$

384,290$

34,6673,658
31,009198,854

150,032
221,760
35,48835,505
127,861
35,48839,561
79,711
20,19010,73648,78526,747
12,569349,440
70,08010,736
268,624
26,747760,747

Total cash outflows
Cash inflows
Secured lending (e.g., reverse repos)
Inflows from fully performing exposures
Other cash inflows

Total weighted
value (average)$

312,357
16,10235,338$392,109$53,5929,851
35,338$98,781
Total adjusted
value

Total HQLA
Total net cash outflows$

Liquidity coverage ratio

384,290
293,328
131%

July 312023
Total adjusted
value(Millions of Canadian dollars, except percentage amounts)

Total HQLA
Total net cash outflows$

Liquidity coverage ratio
(1)
(2)
(3)
(4)
(5)
(6)

94

382,789285,527
134%

The LCR is calculated in accordance with OSFI’s LAR guideline, which, in turn, reflects liquidity-related requirements issued by the BCBS. The LCR for the quarter ended
October 31, 2023 is calculated as an average of 62 daily positions.
With the exception of other contingent funding obligations, unweighted inflow and outflow amounts are items maturing or callable in 30 days or less. Other contingent
funding obligations also include debt securities with remaining maturity greater than 30 days.
As defined by the BCBS, stable deposits from retail and small business customers are deposits that are insured and are either held in transactional accounts or the bankhas an established relationship with the client making the withdrawal unlikely.
Operational deposits from customers other than retail and small and medium-sized enterprises, are deposits which clients need to keep with the bank in order tofacilitate their access and ability to use payment and settlement systems primarily for clearing, custody and cash management activities.
Other contractual funding obligations primarily include outflows from unsettled securities trades and outflows from obligations related to securities sold short.
Other contingent funding obligations include outflows related to other off-balance sheet facilities that carry low LCR runoff factors (0% – 5%).

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

We manage our LCR position within a target range that reflects our liquidity risk tolerance, business mix, asset composition andfunding capabilities. The range is subject to periodic review, considering changes to internal requirements and external
developments.
We maintain HQLAs in major currencies with dependable market depth and breadth. Our treasury management practices aredesigned to ensure that the levels of HQLA are actively managed to meet target LCR objectives. Our Level 1 assets, as calculated
according to OSFI LAR and the BCBS LCR requirements, represent 88% of total HQLA. These assets consist of cash, placementswith central banks and highly rated securities issued or guaranteed by governments, central banks and supranational entities.
LCR captures cash flows from on- and off-balance sheet activities that are either expected or could potentially occur within
30 days in an acute stress scenario. Cash outflows result from the application of withdrawal and non-renewal factors to demand
and term deposits, differentiated by client type (wholesale, retail and small- and medium-sized enterprises). Cash outflows also
arise from business activities that create contingent funding and collateral requirements, such as repo funding, derivatives, shortsales of securities and the extension of credit and liquidity commitments to clients. Cash inflows arise primarily from maturing
secured loans, interbank loans and non-HQLA securities.
LCR does not reflect any market funding capacity that we believe would be available in a stress situation. All maturingwholesale debt is assigned 100% outflow in the LCR calculation.
Q4 2023 vs. Q3 2023
The average LCR for the quarter ended October 31, 2023 was 131%, which translates into a surplus of approximately $91 billion,
compared to 134% and a surplus of approximately $97 billion in the prior quarter. Average LCR levels decreased from priorquarter primarily due to lower wholesale funding levels and loan growth, partially offset by an increase in client deposits.
Net Stable Funding Ratio (NSFR)
NSFR is a Basel III metric that measures the sufficiency of available stable funding relative to the amount of required stable
funding. The BCBS and OSFI regulatory minimum coverage level for NSFR is 100%.
Available stable funding is defined as the portion of capital and liabilities expected to be reliable over the one-year time
horizon considered by the NSFR. Required stable funding is a function of the liquidity characteristics and residual maturities ofvarious bank assets and off-balance sheet exposures.
OSFI requires Canadian D-SIBs to disclose the NSFR using the standard Basel disclosure template. Amounts presented in thisdisclosure template are determined in accordance with the requirements of OSFI’s LAR guideline and are not necessarily alignedwith the classification requirements prescribed under IFRS.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

95

Net Stable Funding Ratio common disclosure template (1)Table 62
As at October 31, 2023
Unweighted value by residual maturity (2)(Millions of Canadian dollars, except percentage amounts)

Available Stable Funding (ASF) Item
Capital:Regulatory Capital
Other Capital Instruments
Retail deposits and deposits from small business customers:
Stable deposits (3)Less stable deposits
Wholesale funding:Operational deposits (4)Other wholesale funding
Liabilities with matching interdependent assets (5)Other liabilities:
NSFR derivative liabilities
All other liabilities and equity not included in the above
categories

No maturity< 6 months

6 months to< 1 year≥ 1 year

Weightedvalue$ 117,650 $– $– $ 11,047 $ 128,697
117,650––
11,047
128,697–––––
301,314104,626
46,05555,553
470,509
97,27044,77024,00026,429184,167
204,04459,85622,05529,124
286,342285,377
510,037
64,539148,995
358,921
163,133–––
81,567122,244510,037
64,539148,995
277,354
68
1,800
2,964
20,378–45,718
235,759
14,112
24,68345,718196,349

1,230

13,497

Total ASF

14,112$ 972,239

Required Stable Funding (RSF) Item
Total NSFR high-quality liquid assets (HQLA)
Deposits held at other financial institutions for operational
purposes
Performing loans and securities:
Performing loans to financial institutions secured by Level 1
HQLA
Performing loans to financial institutions secured by non-Level 1
HQLA and unsecured performing loans to financial
institutions
Performing loans to non-financial corporate clients, loans toretail and small business customers, and loans to sovereigns,
central banks and PSEs, of which:With a risk weight of less than or equal to 35% under the
Basel II standardized approach for credit risk
Performing residential mortgages, of which:With a risk weight of less than or equal to 35% under the
Basel II standardized approach for credit risk
Securities that are not in default and do not qualify as HQLA,
including exchange-traded equities
Assets with matching interdependent liabilities (5)Other assets:
Physical traded commodities, including gold
Assets posted as initial margin for derivative contracts andcontributions to default funds of CCPs
NSFR derivative assets
NSFR derivative liabilities before deduction of variation margin
postedAll other assets not included in the above categories
Off-balance sheet items$ 44,012–
211,825664
312,964–
115,838–
536,388332
706,996–

110,421

20,430275

16,133

4,886

118,014

26,78029,87360,715135,078

59,852

32,108170,886

305,884–
36,953744
21,769710
34,7072,666
315,3342,460
275,215

36,95321,751

34,689314,368

274,376

34,908
68
2,662
2,662

2,908
1,800

1,813
2,964
311,650

20,02020,37849,049–82,617
2,262

18,78825,787–

154,335

54,82419
791,176

Total RSF

15,9701,103

57,897

2,741
60,541
29,674$ 863,631

Net Stable Funding Ratio (%)

113%
As at July 31, 2023

(Millions of Canadian dollars, except percentage amounts)

Weightedvalue

Total ASF

$ 938,870

Total RSF

834,782

Net Stable Funding Ratio (%)
(1)
(2)

(3)
(4)
(5)

96

112%

The NSFR is calculated in accordance with OSFI’s Liquidity Adequacy Requirements (LAR) guideline, which, in turn, reflects liquidity-related requirements issued by the
BCBS.
Totals for the following rows encompass the residual maturity categories of less than 6 months, 6 months to less than 1 year, and greater than or equal to 1 year inaccordance with the requirements of the common disclosure template prescribed by OSFI: Other liabilities, NSFR derivative liabilities, Other assets, Assets posted as
initial margin for derivative contracts and contributions to default funds of CCPs, NSFR derivative assets, NSFR derivative liabilities before deduction of variation margin
posted, and Off-balance sheet items.
As defined by the BCBS, stable deposits from retail and small business customers are deposits that are insured and are either held in transactional accounts or the bankhas an established relationship with the client making the withdrawal unlikely.
Operational deposits from customers other than retail and small and medium-sized enterprises, are deposits which clients need to keep with the bank in order tofacilitate their access and ability to use payment and settlement systems primarily for clearing, custody and cash management activities.
Interdependent assets and liabilities represent National Housing Act Mortgage-Backed Securities (NHA MBS) liabilities, including liabilities arising from transactions
involving the Canada Mortgage Bond program and their corresponding encumbered mortgages.
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Available stable funding is comprised primarily of a diversified pool of personal and commercial deposits, capital, and long-term
wholesale liabilities. Required stable funding is driven mainly by the bank’s mortgage and loan portfolio, secured loans tofinancial institutions and to a lesser extent by other less liquid assets. NSFR does not reflect any unused market funding capacitythat we believe would be available.
Volume and composition of available stable funding is actively managed to optimize our structural funding position andmeet NSFR objectives. Our NSFR is managed in accordance with our comprehensive LRMF.
Q4 2023 vs. Q3 2023
The NSFR as at October 31, 2023 was 113%, which translates into a surplus of approximately $109 billion, compared to 112% and asurplus of approximately $104 billion in the prior quarter. NSFR increased compared to the prior quarter mainly due to anincrease in deposits and stable funding, partially offset by loan growth.
Contractual maturities of financial assets, financial liabilities and off-balance sheet items
The following tables provide remaining contractual maturity profiles of all our assets, liabilities, and off-balance sheet items attheir carrying value (e.g., amortized cost or fair value) at the balance sheet date. Off-balance sheet items are allocated based on
the expiry date of the contract.
Details of contractual maturities and commitments to extend funds are a source of information for the management ofliquidity risk. Among other purposes, these details form a basis for modelling a behavioural balance sheet with effective
maturities to calculate liquidity risk measures. For further details, refer to the Risk measurement and internal liquidity reporting
section.
Contractual maturities of financial assets, financial liabilities and off-balance sheet items

Table 63

As at October 31, 2023

(Millions of Canadian dollars)

AssetsCash and deposits with banks
Securities
Trading (1)Investment, net of applicable allowance
Assets purchased under reverse repurchaseagreements and securities borrowed (2)Loans, net of applicable allowance
Other
Customers’ liability under acceptances
Derivatives
Other financial assets

Less than
1 month$ 130,121 $Total financial assets
Other non-financial assets
Total assets
Liabilities and equity
Deposits (3)Unsecured borrowing
Secured borrowing
Covered bonds
Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loaned (2)Derivatives
Other financial liabilities
Subordinated debentures

Off-balance sheet items
Financial guarantees
Commitments to extend credit
Other credit-related commitments
Other commitments
Total off-balance sheet items
(1)
(2)
(3)

8 $

3 to 6months– $6 to 9months– $9 to 121 yearmonths to 2 years

2 years
5 years
to 5 years and greater

– $

– $

– $

– $

With nospecificmaturity

Total

2,946 $

133,075

117,373
5,090

56
6,436

103
3,890

26
5,547

46
8,678

99
41,734

127
66,047

8,997
81,33763,324820

190,151
219,579

146,72230,88971,34623,02660,46831,442

20,47537,97816,88941,285

3,754
201,479–
320,082–
77,46020,537
89,132

340,191
852,773

16,493
10,074
41,116

5,247
13,655
2,836

–
9,292
3,205

–
6,955
212

–
6,173
587

–
18,905191

533,260279–
44,136
2,600

(50)
–
3,170

21,695
142,450
54,196497,878
5,657

122,610
1,793

108,400
1,765

71,193
191

73,6582,591

266,162
1,976

419,800
2,422

214,530
5,776

179,879
28,711

1,954,110
50,882$ 503,535 $ 124,403 $ 110,165 $ 71,384 $ 76,249 $ 268,138 $ 422,222 $ 220,306 $ 208,590 $ 2,004,992$ 109,666 $ 59,128 $ 62,531 $ 76,957 $ 66,846 $ 59,845 $
4,992
6,044
7,337
4,100
1,489
6,965
–
2,543
–
–
1,687
9,422

Total financial liabilities
Other non-financial liabilities
EquityTotal liabilities and equity

1 to 3months77,782 $13,616
31,84727,314 $ 588,165 $ 1,128,234
8,706–
53,2494,705–
50,204

16,49333,651

5,247
–

–
–

–
–

–
–

–
–

5
–

–
–

–
–

21,74533,651

254,955
9,716
44,207–

37,121
16,3595,295–

19,509
9,311
3,028
–

(6)
6,346
1,382
–

(1)
5,974
1,692
–

279
19,290959––
32,400
2,253
1,937

–
43,233
14,402
9,449

23,381–
3,945–

335,238
142,629
77,163
11,386473,680929–

131,737
6,613–

101,716221–

88,779216–

77,687150–

96,7601,102–

159,840
2,009–

107,80912,928–615,491
9,565
117,760

1,853,499
33,733
117,760$ 474,609 $ 138,350 $ 101,937 $ 88,995 $ 77,837 $ 97,862 $ 161,849 $ 120,737 $ 742,816 $ 2,004,992
$

544 $
7,086
14,79991

2,013 $
3,528 $
3,691 $
4,716 $
784 $
7,314 $
8,338
14,774
14,44718,361
58,978205,504
1,173
1,563
1,858
1,659
169
435
10
15
15
15
55
128

$ 22,520 $ 11,534 $ 19,880 $ 20,011 $ 24,751 $ 59,986 $ 213,381 $701 $23,181
49
178

23 $
5,524
95,099985

23,314356,193
116,804
1,492

24,109 $ 101,631 $

497,803

Trading debt securities classified as FVTPL have been included in the less than 1 month category as there is no expectation to hold these assets to their contractual
maturity.
Open reverse repo and repo contracts, which have no set maturity date and are typically short term, have been included in the with no specific maturity category.
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a corebase for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

97

As at October 31, 2022
Less than
1 month(Millions of Canadian dollars)

AssetsCash and deposits with banks
Securities
Trading (1)Investment, net of applicable allowance
Assets purchased under reverse repurchaseagreements and securities borrowed (2)Loans, net of applicable allowance
Other
Customers’ liability under acceptances
Derivatives
Other financial assets$ 177,946 $Liabilities and equity
Deposits (3)Unsecured borrowing
Secured borrowing
Covered bonds
Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loaned (2)Derivatives
Other financial liabilities
Subordinated debentures

Off-balance sheet items
Financial guarantees
Commitments to extend credit
Other credit-related commitments
Other commitments
Total off-balance sheet items
(1)
(2)
(3)

98

6 to 9months– $– $9 to 12months1 yearto 2 years

– $

– $

2 years
5 years
to 5 years and greater

– $

– $

With nospecificmaturity

Total

2,460 $

180,408

592
7,490

71
7,390

8
3,537

–
4,873

104
12,303

170
50,9798,710
79,38752,059809

148,205
170,018

122,836
31,20376,59021,79558,75029,253

19,24639,91917,212
34,6581,131
150,826–
348,411–75,091

22,08088,809317,845819,965

11,632
13,10048,485

6,235
19,7531,964

5
10,184
1,666

–
7,004
199

–
6,009
457

–
20,709246–
36,081
231–
41,571
2,364

(45)
28
3,025

17,827
154,439
58,637494,943
6,744

134,4211,609

107,319
196

69,913(357)

63,2092,647

185,319
1,691

435,8722,510

207,123
5,192

169,225
29,643

1,867,344
49,875$ 501,687 $ 136,030 $ 107,515 $

69,556 $65,856 $ 187,010 $438,382 $212,315 $

198,868 $ 1,917,219$

64,685 $
2,007
1,993

83,220 $
4,626–

60,161 $
15,40028,692

18,500 $
7,824
5,688

645,195 $ 1,111,731–
53,895–43,18891,052 $4,343–

56,920 $
6,271
1,016

11,63235,511

6,235
–

5
–

–
–

–
–

–
–

–
–

–
–

–
–

17,87235,511

211,929
13,09657,152–35,60022,073
1,390
–

7,743
10,994
1,353
–

1,055
7,097
656
110

313
5,244
958
–

946
20,135892––
34,226
2,378
1,881

–
40,626
11,411
8,034

16,361–
1,117–

273,947
153,491
77,307
10,025424,7151,021–

129,505
6,585–

82,091
298–

77,603
156–

94,361
178–

71,198
1,046–

142,738
1,073–

92,083
12,357–

662,673
9,363
108,175

1,776,967
32,077108,175$ 425,736 $ 136,090 $82,389 $77,759 $94,539 $72,244 $

143,811 $104,440 $

780,211 $ 1,917,219

$

545 $
7,016
1,934
24

2,211 $
6,879
1,135
11

3,745 $
14,1841,674
16

3,274 $
21,094
1,448
16

3,446 $
17,1331,469
16

1,415 $
49,135541
60

4,550 $
193,990520
136

1,068 $
19,269
85
187

37 $
4,516
90,821
849

20,291
333,216
99,6271,315$

9,519 $

10,236 $19,619 $25,832 $22,064 $51,151 $199,196 $20,609 $96,223 $454,449

Total financial liabilities
Other non-financial liabilities
EquityTotal liabilities and equity

2 $3 to 6months86,491
3,250

Total financial assets
Other non-financial assets
Total assets

1 to 3months52,671 $
7,365
1,960

39,327 $
6,059
3,839

Trading debt securities classified as FVTPL have been included in the less than 1 month category as there is no expectation to hold these assets to their contractual
maturity.
Open reverse repo and repo contracts, which have no set maturity date and are typically short term, have been included in the with no specific maturity category.
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a corebase for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Contractual maturities of financial liabilities and off-balance sheet items – undiscounted basis
The following tables provide remaining contractual maturity analysis of our financial liabilities and off-balance sheet items.
Disclosed amounts are the contractual undiscounted cash flows of all financial liabilities (e.g., par value or amount payable
upon maturity). The amounts do not reconcile directly with those in our consolidated balance sheets as the table incorporates
only cash flows relating to payments on maturity and do not recognize premiums, discounts or mark-to-market adjustments
recognized in the instruments’ carrying values as at the balance sheet date. Financial liabilities are based upon the earliest
period in which they are required to be paid. For off-balance sheet items, the undiscounted cash flows potentially payable underfinancial guarantees and commitments to extend credit are classified based on the earliest date they can be called.
Contractual maturities of financial liabilities and off-balance sheet items – undiscounted basis*

Table 64

As at October 31, 2023
On
demand(Millions of Canadian dollars)

Financial liabilities
Deposits (1)Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities loaned
Other liabilities
Lease liabilities
Subordinated debentures
Off-balance sheet items
Financial guarantees (2)Other commitments (3)Commitments to extend credit (2)Total financial liabilities and off-balance sheet
items$ 510,868$

Within1 year

$482,738$

1 yearto 2 years

2 years
to 5 years

74,465$ 124,906$

5 years
and greater

Total

42,920$ 1,235,897––

21,74033,741

–
–

5
–

–
–

21,74533,741

23,381
608––

311,154
54,844
653
–

279
284
621
–

–
657
1,519
1,939

–
12,463
1,971
9,457

334,81468,856
4,764
11,396534,857

904,870

75,649129,026

66,811

1,711,213

23,308
–
5,617

$

2
61
114,495$

4
55
48,848$–128
178,048

28,925

114,558

48,907

178,176$ 563,782$ 1,019,428$ 124,556$ 307,202On
demandWithin 1
year

$

$

–
178
9,185

$

23,314422
356,193

9,363

379,929

76,174$ 2,091,142

5 years
and greater

Total

As at October 31, 2022
(Millions of Canadian dollars)

Financial liabilities
Deposits (1)Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities loaned
Other liabilities
Lease liabilities
Subordinated debentures
Off-balance sheet items
Financial guarantees (2)Other commitments (3)Commitments to extend credit (2)$ 562,288

$

$

*
(1)
(2)

(3)

$

2 years
to 5 years

50,169$ 106,568$

37,260$1,219,996––

17,87235,395

–
–

–
–

–
–

17,87235,395

16,367508––

256,756
61,420
654
110

948
220
630
–

–
709
1,609
1,884

–
9,191
2,217
8,042

274,071
72,048
5,110
10,036579,163

835,918

51,967110,770

56,7101,634,528

20,289–284,606$

304,895
Total financial liabilities and off-balance sheet
items

463,711

1 yearto 2 years$ 884,058

2
73
48,573$48,648$884,566

$

–
60
1

$

–
136
36

61

172

52,028$ 110,942

$

–
187
–

$

187
$

56,897

20,291
456
333,216
353,963$

1,988,491

This table represents an integral part of our 2023 Annual Consolidated Financial Statements.
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a corebase for our operations and liquidity needs, as explained in the preceding Deposit and funding profile.
We believe that it is highly unlikely that all or substantially all of these guarantees and commitments will be drawn or settled within one year, and contracts may expire
without being drawn or settled. The management of the liquidity risk associated with potential extensions of funds is outlined in the preceding Risk measurement andinternal liquidity reporting section.
Includes commitments related to short-term and low-dollar value leases, leases not yet commenced, and lease payments related to non-recoverable tax.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

99

Insurance risk
Insurance risk refers to the potential financial loss that may arise where the amount, timing and/or frequency of benefit and/or
premium payments under insurance and reinsurance contracts are different than expected. Insurance risk is distinct from thoserisks covered by other parts of our risk management framework (e.g., credit, market and operational risk) where those risks areancillary to, or accompany, the risk transfer. The five insurance sub-risks are: morbidity, mortality, longevity, policyholder
behaviour (lapse), and travel risk.
Our Insurance Risk Management Framework provides an overview of our processes and tools for identifying, assessing,managing, mitigating and reporting on the insurance risks that face the organization. These are also supported by our robust
three lines of defence governance structure, which is consistent with our Enterprise Risk Management Framework.
Operational/regulatory compliance risk drivers
Operational risk
Operational risk is the risk of loss or harm resulting from people, inadequate or failed internal processes, controls and systems
or from external events. Operational risk is inherent in all of our activities and third-party activities and failure to manage
operational risk can result in direct or indirect financial loss, reputational impact or regulatory scrutiny and proceedings in thevarious jurisdictions where we operate.
Our management of operational risk follows the three lines of defence governance model, encompassing the organizational roles
and responsibilities for a coordinated enterprise-wide approach. For further details on the structure and organization of ouroperational risk management and control function, refer to the Risk management – Enterprise risk management section.
Operational risk framework
We have an Enterprise Operational Risk Framework which sets out the processes to identify, assess, monitor, measure, reportand communicate on operational risk. The processes are established through the following:•
Risk identification and assessment tools, including the collection and analysis of risk event data, help risk owners
understand and proactively manage operational risk exposures. Risk assessments are intended to ensure alignment
between risk exposures and efforts to manage them. Management uses outputs of these tools to make informed risk
decisions.
•
Risk monitoring tools alert management to changes in the operational risk profile. When paired with escalation andmonitoring triggers, risk monitoring tools can identify risk trends, warn management of risk levels that approach or exceed
defined limits, as well as prompt actions and mitigation plans to be undertaken.
•
Risk capital measurement is designed to provide credible estimation of potential risk exposure, including surfacing risk
vulnerabilities, and informs strategic and capital planning decisions, which are ultimately intended to ensure that the bank issufficiently resilient to withstand operational risk losses both in normal times and under stress situations.
•
Risk reporting and communication processes seek to ensure that relevant operational risk information is made available tomanagement in a timely manner to support risk-informed business decisions.
Conclusions from our operational risk programs enable learning based on what has occurred, insights into whether it could
happen elsewhere in the organization, and what controls we need to amend or implement. These conclusions support thearticulation of our operational risk appetite and are used to inform the overall level of operational risk exposure which thereby
defines our operational risk profile. This profile includes significant operational risk exposures, potential new and emerging
exposures and trends, and overall conclusions on the control environment and risk outlook.
We consider the potential risks and rewards of our decisions to strike a balance between accepting potential losses versus
incurring costs of mitigation, the expression of which is in the form of our operational risk appetite. Our operational risk appetite
is established at the Board level and cascaded throughout each of our business segments. We proactively identify andinvestigate corporate insurance opportunities to mitigate and reduce potential future impacts of operational risk.
Management reports have been implemented at various levels to support proactive management of operational risk andtransparency of risk exposures. These reports are provided to senior management on a regular basis and provide detail on themain drivers of the risk status and trend for each of our business segments and the bank overall. In addition, changes to theoperational risk profile that are not aligned to our business strategy or operational risk appetite are identified and discussed at
the Operational Risk Committee (comprised of executives across the business and risk management) and presented to GRC andthe Risk Committee of the Board.

100

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Our operations expose us to many different operational risks, which may adversely affect our businesses and financial
results. The following list is not exhaustive, as other factors could also adversely affect our results.
Operational risk

Management strategy

Information technology
and cybersecurity risk

Information technology risk is the risk associated with the use, ownership, operation and adoptionof information systems that can result in business interruptions, client service disruptions and lossof confidential information causing financial loss, reputational damage, and regulatory fines andpenalties. We maintain a risk driven program to address the risks following our operational risk
framework supported by a global team of technology risk management experts.
Cybersecurity risk is the risk to the business associated with cyberattacks initiated to disrupt or
disable our operations or to expose or damage data. We have a dedicated team of technology andcybersecurity professionals that manage a comprehensive program to help protect theorganization against breaches and other incidents by ensuring appropriate security andoperational controls are in place. We continue to strengthen our cyber-control framework and to
improve our resilience and cybersecurity capabilities including 24 hour monitoring, cyberintelligence analysis of internal and external threats, and alerting of potentially suspicious
security events and incidents. Throughout the year, we continued to invest in our cybersecurity
program, and multiple scenarios, assessments and simulations were conducted to test ourresiliency strategy.

Information management Information management risk is the risk of failing to manage information appropriately through its
lifecycle due to inadequate processes, controls and technology resulting in legal and regulatory
and privacy risk
consequences, reputational damage and/or financial loss. We have made substantial investmentsin the Enterprise Chief Data Office (CDO) and functional and regional data management and data
governance units to promote awareness of and effectively manage information management risk.
Managing information management risk is fundamental to realizing our Data Vision, which is tobecome a data-driven organization that uses data effectively and efficiently to improve client
experience and decision-making.
Privacy risk is defined as the risk of improper creation or collection, use, disclosure, retention or
destruction of personal information (PI) that identifies an individual or can be reasonably used to
identify an individual. PI includes the personal information entrusted to RBC by its Clients andEmployees. Privacy Risk includes the risk of failure to safeguard PI against unauthorized access oruse. The collection, use and sharing of data, as well as the management and governance of data,
are increasingly important as we continue to invest in digital solutions and innovation, as well as
expanding our business activities, which is also reflected through regulatory developments
relating to data privacy. The CDO and the Global Privacy Office partner with cross-functional
teams to develop and implement enterprise-wide standards and practices that describe how data
is used, protected, managed and governed.
Money laundering and Terrorist financing risk is the risk that our products, services and delivery
Money laundering andTerrorist financing risk channels are misused to facilitate the laundering of proceeds of crime, financing of terrorist
activity, bribery, corruption and other activities that may violate applicable economic sanctions(collectively know as “Financial Crimes”). We maintain an enterprise-wide program designed todeter, detect and report suspected money laundering and terrorist financing or suspicious
activities across our organization, while seeking to ensure compliance with the laws andregulations of the various jurisdictions in which we operate. Our Enterprise Financial Crimes
program is dedicated to the continuous development and maintenance of robust policies,
guidelines, training, risk-assessment tools and models to enable our employees to manage
evolving money laundering and terrorist financing risks, economic sanctions and regulatory
expectations. The Enterprise Financial Crimes program is regularly evaluated in an effort to ensure
it remains current and aligned with industry standards, best practices and all applicable laws,
regulations and guidance. Risks of non-compliance can include enforcement actions, criminal
prosecutions and reputational damage.
Third-party risk

Third-party risk is the risk of failure to effectively manage third parties which may expose us toservice disruptions, regulatory action, financial loss, litigation or reputational damage. We have arisk-based enterprise-wide program designed to provide oversight for third-party relationships,
ensure compliance with global regulatory expectations, and enable effective responses to events
that can cause service disruptions, financial loss or various other risks that could impact us. Our
approach to third-party risk mitigation is outlined in policies and standards that establish therequirements for identifying and managing risks throughout the engagement with a third-party(including risks resultant from supplier concentration and through fourth parties across the supply
chain). Third-party providers critical to our operations are actively monitored for their ability todeliver services to us, including impacts resultant from vendors of our third-party providers (i.e.
fourth parties).

Business continuity risk

Business continuity risk is the risk of being unable to maintain, continue or restore essential
business operations during and/or after an event that prevents us from conducting business in thenormal course. Exposure to disruptive operational events interrupts the continuity of our business
operations and could negatively impact our financial results, reputation, client outcomes and/or
result in harm to our employees. These operational events could result from the impact of severe
weather, outbreak of a pandemic or other health crisis, failed processes, technology failures orcyber threats. Our risk-based enterprise-wide business continuity management program considers
multiple scenarios to address the consequences of a disruption and its effects on the availabilityof our people, processes, facilities, technology and third-party arrangements. Our approach tobusiness continuity management is outlined in policies and standards embedded across theorganization and the related risks are regularly measured, monitored, reported and integrated into
our operational risk management and control framework.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

101

Operational risk capital
Requirements for operational risk capital are determined in accordance with OSFI issued guidelines. Upon implementation of theBasel III reforms in Q2 2023, we adopted a new Standardized Approach (SA) for the measurement of operational risk capital. ThisSA methodology is a formula-based calculation where a Business Indicator Component (BIC) is multiplied by an Internal Loss
Multiplier (ILM) to determine operational risk capital. The BIC is a financial statement-based proxy for operational risk thatreflects a 3-year average of specified components of net income multiplied by a set of supervisory provided coefficients. The ILM
is a scaling factor that is based on our 10-year historical operational loss average relative to the BIC. Operational Risk losses arerecorded in our operational risk management system, and robust processes exist to support high quality internal loss data. For
further details on operational risk capital, refer to the Capital management section.
Operational risk loss events
As at October 31, 2023, our operational risk losses remain within our risk appetite. For further details on our contingencies,
including litigation, refer to Notes 24 and 25 of our 2023 Annual Consolidated Financial Statements.
Culture and conduct risk
Our values set the tone of our organizational culture and translate into desired behaviours as articulated in our Code of Conduct
and leadership model. We define conduct as the manifestation of culture through the behaviours, judgment, decisions andactions of the organization and its employees. Our organizational direction establishes the expectation of good conduct
outcomes as the operating norm for the organization, all employees, and third-party service providers operating on our behalf todrive positive outcomes for our clients, employees, other stakeholders, financial markets and our reputation. We hold ourselvesto the highest standards of conduct to build the trust of our clients, colleagues and communities. The desired outcomes from
effective culture and conduct practices align with our purpose and values and support our risk appetite statements.
Risk culture is a subset of our overall culture that influences how, individually and collectively, we take and manage risks.
Our risk culture helps us identify and understand risks, openly discuss risks and act on the organization’s current and perceived
future risks. Our risk culture practices are grounded in our existing risk management and human resource disciplines andprotocols. When combined with the elements of effective leadership and values, these practices provide a base from which theresulting risk culture and conduct can be assessed, monitored, sustained and subjected to ongoing enhancement.
Our Board-approved Enterprise Culture and Conduct Risks Framework provides organizational direction and describes ourapproach to a set of related topics applicable to all risk categories such as fair outcomes for clients and other stakeholders, andour culture, including accountability and risk culture, conduct risk, sales conduct and client practices, and misconduct.
On a regular basis, management communicates behavioural expectations to our employees with an emphasis on conduct
and values. Our leadership model also supports and encourages effective challenge between the businesses and control
functions. These behavioural expectations are supported by tools and resources which are designed to help employees live ourvalues, report misconduct and raise concerns, including those that might have ethical implications. We are committed tofostering an environment where employees feel safe to speak up without retaliation. Employees have the ability to report
matters through a global anonymous Conduct Hotline. In addition, our Code of Conduct outlines an employee’s responsibility to
be truthful, respect others and comply with laws, regulations and our policies. Anyone who breaches or fails to report an actualor possible breach of the Code of Conduct is subject to corrective or disciplinary action. This can range from reprimands andimpacts on performance ratings and compensation, to termination of employment relationships with the organization. As well,Internal Audit conducts select behavioural science reviews to better understand and enhance employee attitudes andbehaviours as they relate to risk management.

Sets expected

Organizational Direction
articulated through:ValuesLeadership Model
Code of Conduct
Risk Appetite
Risk Principles

Outcomes for
Stakeholders
Clients
Employees
Financial Markets
Regulators
Our Reputation
Shareholders

DrivesCulture Factors
Influential to Managing
Conduct Risk
ShapesRisk AwarenessTone from Above
Accountability
Speaking Up
Incentives

Influences

Individual &Collective Conduct
exhibited through:Behaviours
Judgment
Decisions
Actions

Apply lessons learned

Regulatory compliance risk
Regulatory compliance risk is the risk of potential non-conformance with laws, rules, regulations and prescribed practices in any
jurisdiction in which we operate. Issues regarding compliance with laws and regulations can arise in a number of areas in large
complex financial institutions, such as ourselves, and are often the result of inadequate or failed internal processes, controls,
people or systems. We currently are, and may be at any given time, subject to a number of legal and regulatory proceedings andsubject to numerous governmental and regulatory examinations, investigations and other inquiries.
102

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Laws and regulations are in place to protect the financial and other interests of our clients, shareholders and the public. As alarge-scale global financial institution, we are subject to numerous laws and extensive and evolving regulation by governmental
agencies, supervisory authorities and self-regulatory organizations in Canada, the U.S., the U.K., Europe and other jurisdictions inwhich we operate. Such regulation continues to become increasingly extensive and complex. In addition, regulatory scrutiny andexpectations in Canada, the U.S., the U.K., Europe and other jurisdictions for large financial institutions with respect to, among
other things, governance, risk management practices and controls, and conduct, as well as the enforcement of regulatorycompliance matters, has intensified. Failure to comply with these regulatory requirements and expectations or to resolve any
identified deficiencies could result in increased regulatory oversight and restrictions. Resolution of such matters can also resultin the payment of substantial penalties, agreements with respect to future operation of our business, actions with respect torelevant personnel, admission of wrongdoing, and guilty pleas with respect to criminal charges, which may in turn prohibit us
from conducting certain types of business absent regulatory relief.
Operating in this increasingly complex regulatory environment and intense regulatory enforcement environment, we are andhave been subject to a variety of legal proceedings, including civil claims and lawsuits, criminal charges, regulatory scrutiny,
examinations and proceedings, investigations, audits and requests for information by various governmental regulatory agencies
and law enforcement authorities in various jurisdictions, and we anticipate that our ongoing business activities will give rise tosuch matters in the future. The global scope of our operations also means that a single issue may give rise to overlapping
regulatory investigations, regulatory proceedings and or civil litigation claims in different jurisdictions. RBC can be subject tosuch proceedings due to alleged violations of law or, if determined by regulators, allegedly inadequate policies, procedures,controls or remediation of deficiencies. Changes to laws, including tax laws, regulations or regulatory policies, as well as thechanges in how they are interpreted, implemented or enforced, could adversely affect us, for example, by lowering barriers toentry in the businesses in which we operate, increasing our costs of compliance, or limiting our activities and ability to execute
our strategic plans. In addition, the severity of the remedies sought in legal and regulatory proceedings to which RBC is subject
have increased. Further, there is no assurance that we always will be, or be deemed to be, in compliance with laws, regulations or
regulatory policies or expectations. Accordingly, it is possible that we could receive a judicial or regulatory enforcement
judgment or decision that results in significant fines, damages, penalties, and other costs or injunctions, criminal convictions, orloss of licenses or registrations that would damage our reputation, and negatively impact our earnings and ability to conduct
some of our businesses. We are also subject to litigation arising in the ordinary course of our business and the adverse
resolution of any litigation could have a significant adverse effect on our results or could give rise to significant reputational
damage, which in turn could impact our future business prospects.
Our Regulatory Compliance Management Framework outlines how we manage and mitigate the regulatory compliance risks
associated with failing to comply with, or adapt to, current and changing laws and regulations in the jurisdictions in which we
operate.
Regulatory compliance risk includes the regulatory risks associated with financial crimes (which include, but are not limited
to, money laundering, terrorist financing, bribery, corruption, and violations of economic sanctions), privacy, market conduct,consumer protection and business conduct, as well as prudential and other generally applicable non-financial requirements.
Specific compliance policies, procedures and supporting frameworks have been developed to seek to manage regulatorycompliance risk.
Strategic risk drivers
Strategic risk
Strategic risk is the risk that the enterprise or particular business areas will make inappropriate strategic choices, or will be
unable to successfully implement selected strategies or achieve the expected benefits. Business strategy is a major driver of ourrisk appetite and consequently the strategic choices we make in terms of business mix determine how our risk profile changes.
Responsibility for selecting and successfully implementing business strategies is mandated to the individual heads of eachbusiness segment. Oversight of strategic risk is the responsibility of the heads of the business segments and their operating
committees, the Enterprise Strategy & Transformation group, the GE and the Board. The Enterprise Strategy & Transformationgroup supports the management of strategic risk through the strategic planning process, articulated within our Enterprise
Strategic Planning Policy, ensuring alignment across our business, financial, capital and risk planning.
Our annual business portfolio review and project approval request processes help to identify and mitigate strategic risk by
seeking to ensure that strategies for new initiatives, lines of business, and the enterprise as a whole align with our risk appetite
and risk posture. GRM provides oversight of strategic risk by providing independent reviews of these processes, establishingenterprise risk frameworks, and independently monitoring and reporting on the level of risk established against our risk appetite
metrics in accordance with the three lines of defence governance model.
For details on the key strategic priorities for our business segments, refer to the Business segment results section.
Reputation risk
Reputation risk is the risk of an adverse impact on stakeholders’ perception of RBC due to i) perceived or actual misalignment
between stakeholder perceptions of RBC and the actions or inactions of the bank, its employees, or individuals or groups
affiliated with RBC (e.g. stakeholder perceptions of our role as a good corporate citizen), ii) negative or shifting public sentimenton existing, evolving, or emerging industry or global issues, or iii) negative outcomes relating to any risk inherent to the financial
services industry, including ineffective management of these risks, or situations beyond our control such as external events or
systemic risks. A strong and trustworthy reputation will generally strengthen our market position, reduce the cost of capital,
increase shareholder value, strengthen our resiliency, and help attract and retain top talent. Conversely, damage to our
reputation can result in reduced share price and market capitalization, increased cost of capital, loss of strategic flexibility,
inability to enter or expand into markets, loss of client loyalty and business, regulatory fines and penalties, restrictive
agreements with regulators or prosecutors, or criminal prosecutions. The sources of reputation risk are widespread. Reputation
risk is a transverse risk which can manifest as an outcome of other risk types including but not limited to credit, regulatory, legal,
operational, and environmental and social risks. We can also experience reputation risk from a failure to maintain an effective
control environment, exhibit good conduct and maintain appropriate cultural practices.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

103

Managing our reputation risk is an integral part of our organizational culture and our overall enterprise risk management
approach, as well as a priority for employees and our Board. Our Board-approved Reputation Risk Management Frameworkprovides an overview of our approach to identify, assess, manage, monitor and report on reputation risk. This framework outlines
governance authorities, roles and responsibilities, and controls and mechanisms to manage our reputation risk, including ourculture of integrity, compliance with our Code of Conduct and operating within our risk appetite.
Our governance of reputation risk aims to be holistic and provides an integrated view of potential reputation issues acrossthe organization. This governance structure is designed to ensure that ownership and accountability for reputation risk areunderstood across the enterprise, both proactive and reactive reputation risk decisions are escalated to senior management forreview and evaluation, and reporting on reputation risk is comprehensive and integrated.
Legal and regulatory environment risk
Legal and regulatory environment risk is the risk that new or modified laws and regulations, and the interpretation or applicationof laws and regulations, will negatively impact the way in which we operate, both in Canada and in the other jurisdictions inwhich we conduct business. The full impact of some of these changes on our business will not be known until final rules are
implemented and market practices have developed in response. We continue to respond to these and other developments andare working to minimize any potential adverse business or economic impact. The following provides a high-level summary ofsome of the key regulatory changes that have potential to increase or decrease our costs, impact our profitability and increase
the complexity of our operations.
Global uncertainty
Significant uncertainty about inflationary pressures and geopolitical tensions continues to pose risks to the global economic
outlook. In October 2023, the International Monetary Fund (IMF) projected global growth of 3.0% in calendar 2023 which remains
unchanged from its July 2023 forecast and is up from 2.7% in October 2022. The IMF projected global growth in 2024 of 2.9%. The
global growth recovery from the COVID-19 pandemic and the Russia-Ukraine conflict remains slow and uneven, as economic
activity in certain geographies has not yet returned to pre-pandemic levels, resulting in regional divergences. The resolution of
the U.S. debt ceiling standoff, and decisive actions taken by global authorities to contain instability in the U.S. regional banking
sector have reduced the immediate risks of financial turmoil. However, uncertainty remains regarding: interest rates being
sustained at higher levels for longer; the severity and impact of central banks’ monetary policy tightening as they attempt toreduce persistent levels of elevated inflation; ongoing geopolitical tensions, including those between Russia and Ukraine and theconflict in the Middle East; extreme weather-related events; and the potential re-emergence of financial sector instability asbanks face regulatory reform in the U.S. Our diversified business model, as well as our product and geographic diversification,
continue to help mitigate the risks posed by global uncertainty.
Environment and social-related legal and regulatory activity
Environmental and social-related regulations, frameworks, and guidance that apply to banks, insurers and asset managers
continue to rapidly evolve. As such, new or heightened requirements could result in increased regulatory, compliance or othercosts or higher capital requirements, and may subject us to different and potentially conflicting requirements in the various
jurisdictions in which we operate. We continue to monitor the development of applicable laws in this area, including but notlimited to the evolution of disclosure requirements for public issuers and climate risk management requirements for financial
institutions.
In Canada, OSFI released its final Guideline B-15 – Climate Risk Management on March 7, 2023, which sets out expectations for the
management and disclosure of climate-related risks for federally regulated financial institutions (FRFIs) and aims to support
FRFIs in developing greater resilience to, and management of, these risks. The first set of guidelines will be effective fiscal
year-end 2024, with annual disclosures required to be made publicly available no later than 180 days after fiscal year-end. OSFI
intends to review and amend the guideline as practices and standards evolve. We are currently assessing the impact of theguideline and have initiated work to meet the requirements by the effective date.
In the U.S., the SEC issued proposed rule changes on March 21, 2022, which would require many registrants to include certain
climate-related disclosures in their regulatory filings, including the financial statements. We continue to monitor developments inthis area. In addition, various states in the United States have enacted or proposed statutes or regulations addressing
environmental and/or social matters. As environmental and social issues become more politicized, statutes or regulations incertain states may be interpreted to prohibit governmental entities, such as public pension funds and issuers of municipal bonds,
from doing business with certain financial institutions, and political pressure may be placed upon governmental entities to not
do business with certain financial institutions, based on the financial institutions’ perceived positions on certain environmental
and/or social matters. We continue to monitor developments in this area and assess their impacts on our businesses.
Internationally, the International Sustainability Standards Board (ISSB) issued its inaugural standards on June 26, 2023, being
IFRS S1 General Requirements for Disclosures of Sustainability-related Financial Information and IFRS S2 Climate-related
Disclosures (collectively, the ISSB Standards). IFRS S1 sets out general reporting requirements for disclosing sustainabilityrelated financial information. IFRS S2 requires an entity to disclose information about climate-related risks and opportunities
and the impact on an entity’s financial position, performance, cash flows, strategy and business model. The applicability of thestandards and the effective date for Canadian reporting issuers is subject to adoption by Canadian regulators, and we continue
to monitor communication from the Canadian Securities Administrators.
In addition, the European Union’s Corporate Sustainability Reporting Directive (CSRD) requires reporting under theEuropean Sustainability Reporting Standards (ESRS). The ESRS, which were adopted by the European Commission on July 31,
2023, set out the requirements for companies to report on sustainability-related impacts, opportunities and risks. We are
currently assessing the impact of the CSRD.
We continue to monitor trends in climate-related litigation and regulatory enforcement actions, including those involving claimsof “greenwashing”, which generally refer to claims that false or misleading information about an organization’s products orservices or operations has been conveyed to suggest that the organization is doing more to protect the environment than it is,and to assess the impact on our litigation and regulatory compliance risks.
104

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Government of Canada 2023 Budget
On March 28, 2023, the Government of Canada presented its 2023 budget (“Budget 2023”), which introduced a number of
proposed measures including a proposal to deny the dividend received deduction in respect of dividends received by financial
institutions after December 31, 2023 on shares of corporations resident in Canada where such shares are mark-to-market
property for tax purposes, and a new 2% tax on net share buybacks for publicly listed corporations occurring on or afterJanuary 1, 2024. Budget 2023 also reinforced the Government of Canada’s commitment to the Organization for Economic
Co-operation and Development’s two-pillar plan for international tax reform, including a global 15% minimum tax on
multinational enterprises, and associated draft legislation for a Global Minimum Tax Act was published on August 4, 2023 and theperiod for public comment was closed on September 29, 2023. Timing of enactment of these changes remains uncertain, andlegislation remains subject to amendment prior to enactment. The ultimate impact of the proposed measures will depend on the
final legislation.
Budget 2023 also introduced harmonized sales tax (HST) on payment card clearing services, to be applied prospectively inall cases and retroactively under certain circumstances. A bill with this legislation received royal assent and became law onJune 22, 2023.
Third-party risk management
On April 24, 2023, OSFI released its final Guideline B-10 – Third-Party Risk Management, which sets out expectations for managing
risks associated with third-party arrangements for FRFIs.
This guideline will be effective on May 1, 2024. We have assessed the requirements and do not anticipate any issues incomplying with the requirements by the effective date.
Interest Rate Benchmark Reform
As part of the interest rate benchmark reform, the publication of all remaining USD London Interbank Offered Rate (LIBOR)
settings ceased on June 30, 2023. As at October 31, 2023, and consistent with our transition plan, our exposure to financial
instruments referencing USD LIBOR is no longer material. For further details, refer to Note 2 of our 2023 Annual Consolidated
Financial Statements.
Additionally, on July 27, 2023 the Canadian Alternative Reference Rate Working Group published a market notice confirmingthat effective November 1, 2023, no new CDOR or Bankers’ Acceptance (BA) based lending will be permitted. This announcement
does not impact the ability to draw on existing CDOR or BA loan facilities entered into prior to November 1, 2023 and is in line with
OSFI’s expectations. Our transition plan has been updated to reflect this announcement.
Federal Deposit Insurance Corporation (FDIC) special assessment
On November 16, 2023, the FDIC Board of Directors approved the imposition of a special assessment on certain U.S. depository
institutions to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank andSignature Bank. The special assessment will be assessed at an annual rate of approximately 13.4 basis points of a U.S. depository
institution’s uninsured deposits over a specified threshold, to be collected over an anticipated eight quarterly assessment
periods with the first quarterly assessment period beginning January 1, 2024. The cost of the special assessment for us is
expected to be approximately US$120 million.
For further details on regulatory capital and related requirements, refer to the risk and Capital management sections of this 2023
Annual Report.
Competitive risk
Competitive risk is the risk of an inability to build or maintain a sustainable competitive advantage in a given market or markets
and includes the potential for loss of market share due to competitors offering superior products and services. Competitive risk
can arise from within or outside the financial sector, from traditional or non-traditional competitors, domestically or globally.
There is intense competition for clients among financial services companies. Client loyalty and retention can be influenced byseveral factors, including new technology used or services offered by our competitors, relative service levels and prices, productand service attributes, reputation, actions taken by our competitors, and adherence with competition and anti-trust laws. Other
companies, such as insurance companies and non-financial companies, as well as new technological applications, areincreasingly offering services traditionally provided by banks. This competition could also reduce our revenue which could
adversely affect our results.
We identify and assess competitive risks as part of our overall risk management process. Our products and services are
regularly benchmarked against existing and potential competitors. In addition, we regularly conduct risk reviews of our products,
services, mergers and acquisitions strategy, and we seek to ensure adherence to competition and anti-trust laws. Our annual
strategy-setting process also plays an integral role in managing competitive risk.
Macroeconomic risk drivers
Systemic risk
Systemic risk is the risk that the financial system as a whole, or a major part of it – either in an individual country, a region or
globally – is put in real and immediate danger of collapse or serious damage due to an unforeseen event causing a substantive
shock to the financial system with the likelihood of material damage to the economy, and which would result in financial,
reputation, legal or other risks for us.
Systemic risk is considered to be the least controllable risk, leading to increased vulnerabilities as experienced during the2008 global financial crisis and the COVID-19 pandemic. In 2023, U.S. regional bank failures highlighted the potential vulnerabilityof the financial system to systemic risks, particularly given tightening financial regulations and technology-driven increases intransaction velocity. Our ability to mitigate systemic risk when undertaking business activities is limited, other than throughcollaborative mechanisms between key industry participants, and, as appropriate, the public sector and regulators to reduce thefrequency and impact of these risks. The two most significant measures in mitigating the impact of systemic risk arediversification and stress testing.
Management’s Discussion and Analysis

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105

Our diversified business model, portfolios, products, activities and funding sources help mitigate the potential impacts fromsystemic risk. Our established risk limits also seek to ensure our portfolio is diversified, and concentration risk is reduced andremains within our risk appetite.
Stress testing involves consideration of the simultaneous movements in several risk factors. Stress testing seeks to ensure
our business strategies and capital planning are robust by measuring the potential impacts of credit, market, liquidity andoperational risks, under adverse economic conditions. Our enterprise-wide stress testing program evaluates the potential effects
of a set of specified changes in risk factors, corresponding to exceptional but plausible adverse economic and financial market
events. These stress scenarios are evaluated across the organization, and results are integrated to develop an enterprise-wide
view of the impacts on our financial results and capital requirements. For further details on our stress testing, refer to theEnterprise risk management section.
Our financial results are affected by the business and economic conditions in the geographic regions in which we operate.
These conditions include consumer saving and spending habits as well as consumer borrowing and repayment patterns,
business investment, government spending, exchange rates, sovereign debt risks, the level of activity and volatility of the capital
markets, strength of the economy and inflation. Given the importance of our Canadian and U.S. operations, an economic
downturn may largely affect our personal and business lending activities and may result in higher provisions for credit losses.
Deterioration and uncertainty in global capital markets could result in continued high volatility that would impact results in
Capital Markets. In Wealth Management, weaker market conditions could lead to lower average fee-based client assets andtransaction volumes. In addition, worsening financial and credit market conditions may adversely affect our ability to access
capital markets on favourable terms and could negatively affect our liquidity, resulting in increased funding costs and lower
transaction volumes in Capital Markets and Wealth Management.
Our financial results are also sensitive to changes in interest rates. To address persistent inflationary pressures, major
central banks continued increasing benchmark interest rates during fiscal 2023 and the future path of monetary policy is
uncertain. While there may be a potential benefit to our NIM, elevated interest rates generally result in higher funding costs. If
elevated interest rates are coupled with persistent inflation, it could increase market volatility and reduce asset values, andadversely impact household and corporate balance sheets. This could lead to credit deterioration and impact our financial
results, particularly in our Personal & Commercial Banking, Wealth Management and Capital Markets businesses.
Overview of other risks
In addition to the risks described in the risk sections, there are other risk factors, described below, which may affect ourbusinesses and financial results. The following discussion is not exhaustive as other factors could also adversely affect our
results.
Government fiscal, monetary and other policies
Our businesses and earnings are affected by monetary policies that are adopted by the BoC, the Fed in the U.S., the ECB in theEuropean Union (EU), the BoE in the U.K. and monetary authorities in other jurisdictions in which we operate, as well as the fiscal
policies of the governments of Canada, the U.S., the U.K., Europe and such other jurisdictions. Such policies can also adversely
affect our clients and counterparties in Canada, the U.S. and internationally, which may increase the risk of default by suchclients and counterparties.
Tax risk and transparency
Tax risk refers to the risk of loss related to unexpected tax liabilities. The tax laws and systems that are applicable to us arecomplex and wide-ranging. As a result, we seek to ensure that any decisions or actions related to tax always reflect ourassessment of the long-term costs and risks involved, including their impact on our reputation and our relationship with clients,
shareholders and regulators.
Our approach to taxation is grounded in principles which are reflected in our Code of Conduct, is governed by our EnterpriseTax Risk Management Policy, and incorporates the fundamentals of our risk drivers. Oversight of our tax policy and the
management of tax risk is the responsibility of the GE, the CFO and the Senior Vice President, Taxation. We discuss our tax
strategy with the Audit Committee annually and provide updates on our tax position on a regular basis.
Our tax strategy is designed to provide transparency and support our business strategy, and is aligned with our corporate
vision and values. We seek to maximize shareholder value by structuring our businesses in a tax-efficient manner whileconsidering reputation risk by being in compliance with all laws and regulations. Our policy requires that we:•
Act with integrity and in a straightforward, open and honest manner in all tax matters;•
Ensure tax strategy is aligned with our business strategy supporting only bona fide transactions with a business purposeand economic substance;•
Ensure all intercompany transactions are conducted in accordance with applicable transfer pricing requirements;•
Ensure our full compliance and full disclosure to tax authorities of our statutory obligations; and•Endeavour to work with the tax authorities to build positive long-term relationships and where disputes occur, address
them constructively.
With respect to assessing the needs of our clients, we consider a number of factors including the purpose of the transactions. We
seek to ensure that we only support bona fide client transactions with a business purpose and economic substance. Should we
become aware of client transactions that are aimed at evading their tax obligations, we will not proceed with the transactions.
We operate in 29 countries worldwide. Our activities in these countries are subject to both Canadian and international tax
legislation and other regulations, and are fully disclosed to the relevant tax authorities. The Taxation group and GRM both
regularly review the activities of all entities in an effort to ensure compliance with tax requirements and other regulations.
Given that we operate globally, complex tax legislation and accounting principles have resulted in differing legal
interpretations between the respective tax authorities we deal with and ourselves, and we are at risk of tax authorities
disagreeing with prior positions we have taken for tax purposes. When this occurs, we are committed to an open and transparent
dialogue with the tax authorities to facilitate a quick assessment and prompt resolution of the issues where possible. Failure to106

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

adequately manage tax risk and resolve issues with tax authorities in a satisfactory manner could adversely impact our results,
potentially to a material extent in a particular period, and/or significantly impact our reputation.
Tax contribution
In 2023, total income and other tax expense, including income taxes in the Consolidated Statements of Comprehensive Income
and Changes in Equity, to various levels of governments globally totalled $5 billion (2022 – $6 billion). In Canada, total income
and other tax expense for the year ended October 31, 2023 to various levels of government totalled $4 billion (2022 – $5 billion).
Income and other tax expense – by category

Income and other tax expense – by geography(Millions of Canadian dollars)(Millions of Canadian dollars)

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2023

2023

2022

Business taxes

Insurance premium taxes

Property taxes

Capital taxes

Payroll taxes

Value added andsales taxes

Income taxes

2022

U.S.

Other International

CanadaFor further details on income and other tax expense, refer to the Financial performance section.
Environmental and social risk
Environmental and social (E&S) risk is the potential for an E&S issue associated with us, a client, transaction, product, supplier or
activity, to have a negative impact on us, including our financial position, operations, legal and regulatory compliance, or
reputation. It refers to the risk that we face as a result of the manner in which we, a supplier or a client manages E&S issues orrelationships with stakeholders and communities.
E&S issues include, but are not limited to, site contamination, waste management, land and resource use, biodiversity, water
quality and availability, climate change, environmental regulation, human rights (including, but not limited to social and racialinequality and Indigenous Peoples’ rights), and community engagement.
E&S risks, including climate risk, are each unique and transverse risks and impact all our principal risk types in different
ways and to varying degrees, including but not limited to strategic, operational, credit, reputation, legal and regulatoryenvironment, and regulatory compliance risks. See the Climate risk section below for additional information specific to climate
risk.
Governance
The Board oversees how we manage our E&S risks, our enterprise approach to E&S risks, and how we conduct our business tomeet high standards of E&S responsibility. The Board approved our updated climate strategy, the RBC Climate Blueprint, which
was published in February 2022. The Committees of the Board have oversight of E&S risks that are specific to their respective
responsibilities, with the Governance Committee playing a specific oversight and coordination role over ESG matters, including
over certain of our ESG-related disclosures. For further details on risk governance, refer to the Enterprise risk management – Risk
governance section.
Roles and responsibilities related to E&S risk management are governed by the Enterprise Risk Management Framework andthe three lines of defence governance model. Business segments and functional areas are responsible for incorporating E&S risk
management requirements within their own operations, while GRM is responsible for developing and maintaining an integrated
enterprise view of E&S risk, including establishing policies and procedures, and performing effective challenge and oversight inrelation to E&S risk.
Risk management
We seek to integrate E&S risk considerations into our risk management processes. We continue to evolve our approach to E&S
risk by leveraging existing risk management capabilities, and where new capability builds are required, we incorporate regulatory
guidance, industry best practices and improved data analytics to identify and assess, measure, manage, mitigate, monitor andreport on potential impacts to clients, portfolios, and our operations.
Our Enterprise Policy on Environmental (including climate) and Social Risk (E&S Risk Policy)1 serves as the foundation for
our approach to managing E&S risks arising from our activities. It outlines our principles for E&S risk management, and sets out
standards for how E&S risks arising from our activities are identified, assessed, measured, managed, mitigated, monitored andreported.
The E&S Risk Policy is supported by additional policies and procedures on E&S risk management for business segments,
which includes an enhanced due diligence process which we undertake for certain corporate and commercial clients, to identify
E&S issues that may drive E&S risk for RBC. As a signatory to the Equator Principles (EP) framework, we also have a procedurethat outlines our governance for managing E&S risks related to certain project finance-related transactions. We also have policy
guidelines2 in place for sensitive sectors and activities, which address our financing activities to clients and projects operating in
the coal-fired power generation and coal mining sectors, the Arctic ecosystem, the Arctic National Wildlife Refuge, and United
Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage Sites.
1

2

The E&S Risk Policy is not inclusive of the activities of, and assets under management by, RBC Global Asset Management (RBC GAM). RBC GAM has developed its own
policy with respect to these matters. RBC GAM includes, but is not limited to, the following wholly owned indirect subsidiaries of the Bank: RBC Global Asset Management
Inc. (including Phillips, Hager & North Investment Management), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global AssetManagement (Asia) Limited and BlueBay Asset Management LLP.
See RBC’s Policy Guidelines for Sensitive Sectors and Activities which address our lending activities.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

107

Climate risk
Climate risk is the risk related to the global transition to a net-zero economy (transition risk) and the physical impacts of climatechange (physical risk), which includes both chronic (longer-term) risks (e.g., rising sea levels and increases in averagetemperatures) and acute (event driven) risks (e.g., wildfires and floods). Both we and our clients may be exposed to climaterelated transition risk, including through emerging regulatory and legal requirements, changing business and consumer
sentiment towards products and services, technological developments, and changes in stakeholder expectations. Additionally,
we and our clients may be vulnerable to climate-related physical risk through disruptions to operations and services.
We continue to advance our climate risk measurement, management, monitoring and reporting capabilities and ourunderstanding of the impact climate-related risks may have on our business and our clients’ businesses.
We maintain a diversified lending portfolio, which improves our resilience to geographic or sectoral downturns and limits
concentrations of credit exposure to climate risk. We continue to build our capability to assess the potential impact of bothtransition and physical risk on our portfolio. In particular, we conduct portfolio, client and scenario analyses to assess our
exposure to, and the impact of, climate-related risks. As part of our annual stress testing and analysis, we continue to integratecomponents of climate risk through transition and physical risk stresses and to assess its impact on our key portfolios. We seek
to improve data quality to further identify those sectors within our wholesale portfolio that are most affected by physical andtransition risk. We are continuing to expand our climate data inventory and enhance our climate data governance processes, toimprove our climate risk analytical capabilities.
We classify critical environment sites based on our business risk tolerance for site-specific downtime and, among otherthings, site location, power supply, exposure to flooding, geological stability, and other hazards. We also take steps to mitigate
and adapt to climate change through our building design and our purchasing decisions.
Our continued development of our climate risk measurement capabilities will inform the enhancements to our climate risk
management practices and advance the integration of climate risks into our policies and procedures.
Human rights and codes of conduct
Our approach to identifying, assessing, managing and mitigating social issues such as human rights issues, is set out in our E&S
Risk Policy, and is supported by additional policies and position statements that reflect our approach to managing ourbusinesses in a responsible manner.
RBC is committed to respecting human rights, including those of any clients, employees, third parties with whom we conductbusiness or who may be affected by our business activities – either directly or indirectly – and to taking the actions set out in
RBC’s Human Rights Position Statement (Statement) in order to meet the responsibility of businesses like ours to respect humanrights as set out in the United Nations Guiding Principles on Business and Human Rights. Our Statement is adopted at the highest
levels of our organization and is published on our website.
Our Modern Slavery Act Statement is published annually and sets out our commitment to preventing slavery and humantrafficking from taking place in our businesses and in our supply chains.
Our Code of Conduct establishes standards of desired behaviour that apply to all directors, employees, and contract
workers of the bank and its subsidiaries. In addition, our principles-based Supplier Code of Conduct articulates our expectations
with respect to a supplier’s business integrity, responsible business practices and responsible treatment of individuals and theenvironment.
Framework and commitments
We are a participant or signatory to various industry principles and initiatives that are designed to help mitigate E&S risk within
our business activities or advance responsible business practices, including but not limited to the following:•
RBC is a member of the Net-Zero Banking Alliance (NZBA), which is a global industry-led initiative to accelerate and support
efforts to address climate change by aligning member banks’ lending and investment portfolios with net-zero emissions by
20503. As a member of the NZBA, we made a commitment to setting and disclosing interim emissions reduction targets forour key high-emitting sectors.
•
RBC is a member of the Partnership for Carbon Accounting Financials (PCAF), which is an industry-led partnership tofacilitate transparency and enable financial institutions to assess and disclose greenhouse gas emissions of loans andinvestments. In October 2022, in accordance with our NZBA commitment, we published our initial interim emissions
reduction targets in our lending activities for the oil and gas, power generation and automotive sectors3.
•
RBC is a signatory to the Equator Principles (EP), which is a benchmark for determining, assessing and managing E&S risks
for project finance. We report annually on projects assessed according to the EP framework.
•
RBC GAM and Brewin Dolphin Holdings Limited are signatories to the United Nations Principles for Responsible Investment(UN PRI) and report on their responsible investment activities to the UN PRI.
In addition, we are committed to providing $500 billion in sustainable finance by 20254. In October 2022, we published ourapproach and methodology for classifying, tracking, and disclosing progress towards our sustainable finance commitment and tosupport the identification of new growth opportunities for our clients and our business.
We may be exposed to legal, regulatory or reputation risk in the event that we do not fully implement these frameworks ormeet these commitments, goals or targets, either as a result of our own actions or due to external factors. More specifically, ourability to achieve our climate and sustainable finance-related commitments, goals and targets, including those discussed above,
will depend on the collective efforts and actions across a wide range of stakeholders outside of our control, and there can be noassurance that they will be achieved5.
3

4
5

108

Our NZBA commitments to achieving net-zero emissions in our lending by 2050 and to our initial 2030 interim emissions reduction targets for lending in three key sectors(oil & gas, power generation and automotive) are not inclusive of the activities of, and the assets under management by, RBC GAM and RBC Wealth Management(RBC WM). RBC WM includes, but is not limited to, the following affiliates: (a) RBC Dominion Securities Inc. (Member–Canadian Investor Protection Fund), RBC Direct
Investing Inc. (Member–Canadian Investor Protection Fund), Royal Mutual Funds Inc., RBC Wealth Management Financial Services Inc., Royal Trust Corporation of
Canada and The Royal Trust Company, which are separate but affiliated subsidiaries of us; and (b) Brewin Dolphin Holdings PLC and its subsidiaries.
Sustainable finance refers to financial activities that take into account environmental, social and governance factors.
External factors that could cause our actual results to differ materially from our expectations expressed in such commitments, goals and targets include the need formore and better climate data and standardization of climate-related measurement methodologies, our ability to gather and verify data, our ability to successfully
implement various initiatives throughout our enterprise under expected time frames, difficulty in identifying transactions, products and services that meet thesustainable finance classification criteria, the risk that eligible transactions or related initiatives will not be completed within any specified period or at all or with theresults or outcome as originally expected or anticipated by us, our ability to track transactions and report on them as performance against our climate or sustainablefinance commitment, the compliance of various third parties with our policies and procedures and their commitment to us, the need for active and continuing
participation and action of various stakeholders, technological advancements, the evolution of consumer behaviour, varying decarbonization efforts across economies,
the need for thoughtful climate policies around the world, the challenges of balancing emission reduction targets with an orderly, just and inclusive transition andgeopolitical factors that impact global energy needs, the legal and regulatory environment, and regulatory compliance considerations. Our climate- or sustainablefinance-related commitments, goals and targets are aspirational and may need to be changed or recalibrated as data improve and as climate science, transition
pathways and market practices regarding standards, methodologies, metrics and measurements evolve.
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Legal and regulatory developments
Environmental and social-related regulations, frameworks, and guidance that apply to banks, insurers and asset managers
continue to rapidly evolve. As such, new or heightened requirements could result in increased regulatory, compliance or othercosts or higher capital requirements, and may subject us to different and potentially conflicting requirements in the various
jurisdictions in which we operate. As regulatory requirements evolve, we will continue to monitor such developments and update
our risk management practices and disclosures as necessary. See the Legal and regulatory environment risk section for further
details.
Capital management
We actively manage our capital to maintain strong capital ratios and high ratings while providing strong returns to ourshareholders. In addition to the regulatory requirements, we consider the expectations of credit rating agencies, depositors andshareholders, as well as our business plans, stress tests, peer comparisons and our internal capital ratio targets. Our goal is to
optimize our capital usage and structure, and to provide support for our business segments and clients. We also aim to generate
optimal returns for our shareholders, while protecting depositors and creditors.
Capital management framework
Our capital management framework establishes policies and processes for defining, measuring, raising and investing all forms ofcapital in a coordinated and consistent manner. It sets our overall approach to capital management, including guiding principles
and roles and responsibilities relating to capital adequacy and transactions, dividends, solo capital, and management of RWA,
leverage ratio exposures, TLAC capital and TLAC leverage ratios. We manage and monitor capital from several perspectives,
including regulatory capital, solo capital and TLAC.
Our capital planning process is dynamic and involves various teams including Finance, Corporate Treasury, GRM, Economics
and our businesses, and covers internal capital ratio targets, potential capital transactions as well as projected dividend payouts
and share repurchases. This process considers our business operating plans, enterprise-wide stress testing and ICAAP,
regulatory capital changes and supervisory requirements, accounting changes, internal capital requirements, rating agency
metrics and solo capital.
Our capital plan is established on an annual basis and is aligned with the management actions included in the annual
business operating plan, which includes forecast growth in assets and earnings taking into account our business strategies, theprojected market and economic environment, and peer positioning. This includes incorporating potential capital transactions
based on our projected internal capital generation, business forecasts, market conditions and other developments, such asaccounting and regulatory changes that may impact capital requirements. All of the components in the capital plan aremonitored throughout the year and are revised as deemed appropriate.
Capital impacts of stress scenarios

Enterprise-wide
Stress Testing

Total capital requirements

Capital impacts ofstress scenarios

Capital Plan andBusiness
Operating Plan

ICAAP
Capital available and target
capital ratios

Our enterprise-wide stress testing and annual ICAAP processes provide key inputs for capital planning, including settinginternal capital ratio targets. The stress scenarios are evaluated across the organization, and results are integrated to develop
an enterprise-wide view of financial impacts and capital requirements, which in turn facilitate the planning of mitigating actions
to absorb adverse events. ICAAP assesses capital adequacy and requirements covering all material risks, with a cushion forplausible contingencies. In accordance with OSFI guidelines, major components of our ICAAP process include comprehensive risk
assessment, stress testing, capital assessment and planning, Board and senior management oversight, monitoring and reportingand internal control review.
Our internal capital targets are established to maintain robust capital positions in excess of OSFI’s Basel III regulatory targets.
The results of our enterprise-wide stress testing and ICAAP processes are incorporated into the OSFI Capital Buffers, Domestic
Systemically Important Banks (D-SIB)/Globally Systemically Important Banks (G-SIB) surcharge, and Domestic Stability Buffer(DSB), with a view to ensure that the bank has adequate capital to underpin risks and absorb losses under all plausible stressscenarios given our risk profile and appetite. In addition, we include a discretionary cushion on top of OSFI’s regulatory targets toreflect our risk appetite, our forecasts of potential negative downturns and to maintain our capital strength for forthcoming
regulatory and accounting changes, peer comparatives, rating agencies sensitivities, future acquisitions and solo capital level.
The Board is responsible for the ultimate oversight of capital management, including the annual review and approval of thecapital plan. ALCO and GE share responsibility for capital management and receive regular reports detailing our compliance withapproved limits and guidelines. The Audit and Risk Committees jointly approve the ICAAP process.
Basel IIIOur consolidated regulatory capital requirements are determined by OSFI’s Capital Adequacy Requirements (CAR) guidelines,
which are based on the minimum Basel III capital ratio requirements adopted by the BCBS.
Under Basel III, banks select from two main approaches, the Standardized Approach (SA) or the IRB Approach, to calculate theirminimum regulatory capital required to support credit, market and operational risks. We adopted the Basel III IRB approach to
calculate credit risk capital for consolidated regulatory reporting purposes. While the majority of our credit risk exposures arereported under the Basel III IRB Approach for regulatory capital purposes, certain portfolios continue to use the Basel III SA for credit
risk, primarily in Wealth Management, including our City National wholesale portfolio, and our Caribbean Banking operations. For
consolidated regulatory reporting of market risk capital, we currently use both the Internal Models-based and Standardized
Approaches. For consolidated regulatory reporting of operational risk capital we use the SA, as implemented under Basel III. We
determine our regulatory leverage ratio based on OSFI’s LR Guideline, which reflects the BCBS Basel III leverage ratio requirements.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

109

All federally regulated banks with a Basel III leverage ratio total exposure exceeding €200 billion at their financial year-end
are required, at a minimum, to publicly disclose in the first quarter following their year-end, the thirteen indicators used in theannual G-SIB assessment methodology, with the goal of enhancing the transparency of the relative scale of banks’ potential
global systemic importance and data quality. The FSB publishes an updated list of G-SIBs annually. On November 27, 2023, wewere re-designated as a G-SIB by the FSB. This designation requires us to maintain a higher loss absorbency requirement(common equity as a percentage of RWA) of 1% consistent with the D-SIB requirement.
OSFI’s TLAC guideline establishes two minimum standards: the risk-based TLAC ratio, which builds on the risk-based capitalratios described in the CAR guideline, and the TLAC leverage ratio, which builds on the leverage ratio described in OSFI’s LR
guideline. The TLAC requirement is intended to address the sufficiency of a D-SIB’s loss absorbing capacity in supporting its
recapitalization in the event of its failure. TLAC is defined as the aggregate of Tier 1 capital, Tier 2 capital and external TLAC
instruments which allow conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility
criteria under the TLAC guideline.
OSFI requires all D-SIBs to publicly disclose their Pillar 2 DSB requirement as part of their quarterly disclosures, similar toother current capital-related disclosure requirements. The level of the Pillar 2 buffer ranges between 0% and 4% of the entity’s
total RWA for each of the six systemically important banks in Canada. The DSB requirements must be met at the CET1 capitallevel. OSFI undertakes a review of the DSB on a semi-annual basis, in June and December, and will publicly announce anychanges at that time.
On December 8, 2022, OSFI announced an increase in the DSB upper limit to 4% of total RWA from the upper limit of 2.5% of
total RWA, and an increase to the DSB level of 50 bps to 3%, effective February 1, 2023. On June 20, 2023, OSFI announced anincrease in the DSB level from the current 3% to 3.5% of total RWA effective November 1, 2023.
The following table provides a summary of OSFI’s current regulatory target ratios under Basel III and Pillar 2 requirements. We
are in compliance with all current capital, leverage and TLAC requirements imposed by OSFI:
Basel III – OSFI regulatory targets

Table 65

OSFI regulatory target requirements
for large banks under Basel III
Basel III
capital,leverage and TLAC
ratiosCommon Equity
Tier 1
Tier 1 capital
Total capital
Leverage ratio
TLAC ratio
TLAC leverage ratio
(1)
(2)
(3)
(4)
n.a.

110

Minimum
Capital including D-SIB/G-SIB
Minimum
Buffers Capital surcharge (1)Buffers

4.5%
6.0%
8.0%
3.5%
21.6%
7.25%

2.6%
2.6%
2.6%
n.a.
n.a.
n.a.

7.1%
8.6%
10.6%
3.5%
21.6%
7.25%

1.0%
1.0%
1.0%
n.a.
n.a.
n.a.

Minimum
including
CapitalBuffers and
D-SIB/G-SIB
surcharge (1), (2)

8.1%
9.6%
11.6%
3.5%
21.6%
7.25%

RBC capital,
leverage
Domestic
and TLAC
Stability
ratios as at
Buffer (3)October 31,
2023

14.5%
15.7%
17.6%
4.3%
31.0%
8.5%

3.0%
3.0%
3.0%
n.a.
3.0%
n.a.

Minimum
Minimum
includingincluding
CapitalCapitalBuffers,
Buffers,
D-SIB/G-SIB
D-SIB/G-SIB
surcharge and surcharge andDomestic
Domestic
Stability
Stability
Buffer as at Buffer effective
November 1,
October 31,
2023 (4)
2023

11.1%
12.6%
14.6%
3.5%
24.6%
7.25%

11.6%
13.1%
15.1%
3.5%
25.1%
7.25%

A capital surcharge, equal to the higher of our D-SIB surcharge and the BCBS’s G-SIB surcharge, is applicable to risk-weighted capital.
The capital buffers include the capital conservation buffer of 2.5% and the countercyclical capital buffer (CCyB) as prescribed by OSFI. The CCyB, calculated inaccordance with OSFI’s CAR guidelines, was 0.06% as at October 31, 2023 (October 31, 2022 – 0.01%).
The DSB can range from 0% to 4% of total RWA and as at October 31, 2023 was set at 3% by OSFI.
Effective November 1, 2023, the DSB level increased by 50 bps. Minimum target requirements reflect CCyB requirements as at October 31, 2023 which are subject tochange based on exposures held at the reporting date.
not applicableRoyal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Regulatory capital, TLAC available, RWA, capital and TLAC ratios
Under Basel III, capital consists of CET1, Additional Tier 1, Tier 2 capital and external TLAC instruments.
CET1 capital comprises the highest quality of capital. Regulatory adjustments under Basel III include full deductions ofcertain items and additional capital components that are subject to threshold deductions as prescribed in the CAR guidelines.
Tier 1 capital comprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares andlimited recourse capital notes (LRCNs) that meet certain criteria. Tier 2 capital primarily includes subordinated debentures thatmeet certain criteria and certain loan loss allowances. Total capital is defined as the sum of Tier 1 and Tier 2 capital. Preferredshares, LRCNs, and subordinated debentures issued after January 1, 2013 require Non-viability contingent capital (NVCC) features
to be included into regulatory capital. NVCC requirements ensure that non-common regulatory capital instruments bear losses
before banks seek government funding.
TLAC available is defined as the sum of Total capital and external TLAC instruments. External TLAC instruments comprise
predominantly senior bail-in debt, which includes eligible senior unsecured debt with an original term to maturity of greater than
400 days and remaining term to maturity of greater than 365 days.
Capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by total RWA.
The following chart provides a summary of the major components of CET1, Additional Tier 1, Tier 2 capital and external TLAC instruments.

TLAC Available
Total Capital
Tier 1 Capital
Additional Tier 1 Capital+

Tier 2 Capital

(2)

(3)

External TLAC
Instruments

Common shares
Retained earnings
Other components of equity
Non-controlling interests in
subsidiaries’ CET1 instruments

Preferred shares
Limited recourse capital notes
Non-controlling interests in
subsidiaries’ Tier 1 instruments

Subordinated debentures lessamortization
Certain loan loss allowances
Non-controlling interests in
subsidiaries’ Tier 2 instruments

Senior bail-in debt
Amortized portion ofsubordinated debentures

Goodwill and other intangibles
Deferred tax assets on loss
carryforwards
Defined benefit pension fundassets
Non-significant investmentsin CET1 instruments of financial
institutions (3)Shortfall of provisions to
expected losses
Prudential valuation
adjustments
Prepaid portfolio insurance
assetsNon payment and non deliveryof trades
Equity investment in funds
subject to the fall-backapproachNon-significant investments inTier 1 instruments of financial
institutions (3)Significant investments inother financial institutions’and insurance subsidiaries’
Tier 1 instruments

Non-significant investments inTier 2 and TLAC instrumentsof financial institutions (3)Significant investments inother financial institutions’and insurance subsidiaries’
Tier 2 and TLAC instruments

Investments in own TLAC
instruments

Significant investments inInsurance subsidiaries and
CET1 instruments in otherfinancial institutions
Mortgage servicing rights
Deferred tax assets relating
to temporary differences
Higher quality
capital(1)+

Deductions+

Threshold
Deductions (2)Common Equity
Tier 1 (CET1) (1)Lower quality
capital

In accordance with OSFI’s regulatory adjustments announced in Q2 2020, our 2022 figures include capital modifications associated with Stage 1 and 2 allowances
which were subject to a 25% after-tax exclusion rate in fiscal 2022. This guidance ceased to apply at the beginning of fiscal 2023.
First level: The amount by which each of the items exceeds a 10% threshold of CET1 capital (after all deductions but before threshold deductions) will be
deducted from CET1 capital. Second level: The aggregate amount of the three items not deducted from the first level above and in excess of 15% of CET1 capital
after regulatory adjustments will be deducted from capital, and the remaining balance not deducted will be risk-weighted at 250%.
Non-significant investments are subject to certain CAR criteria that drive the amount eligible for deduction.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

111

The following tables provide details on our regulatory capital, TLAC available, RWA, and on ratios for capital, leverage and TLAC.
Our capital position remains strong and our capital, leverage and TLAC ratios remain well above OSFI regulatory targets:
Regulatory capital, TLAC available, RWA and capital, leverage and TLAC ratios

Table 66
As at

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

Capital (1)CET1 capital
Tier 1 capital
Total capital
Risk-weighted assets (RWA) used in calculation of capital ratios (1)Credit risk
Market risk
Operational risk
Total RWA
Capital ratios and Leverage ratio (1)CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Leverage ratio exposure (billions)
TLAC available and ratios (2)TLAC available
TLAC ratio
TLAC leverage ratio
(1)

(2)

$

October 31

October 31

2023

2022

86,611
93,904
104,952$

76,94584,24293,850$ 475,842
40,49879,883$ 596,223$$

496,898
35,342
77,639609,879

$

12.6%
13.8%
15.4%
4.4%
1,898

$

14.5%
15.7%
17.6%
4.3%
2,180

$ 184,916
31.0%
8.5%

$

160,961
26.4%
8.5%

Capital, RWA, and capital ratios are calculated using OSFI’s CAR guideline and the Leverage ratio is calculated using OSFI’s LR guideline.
Both the CAR guideline and LR guideline are based on the Basel III framework. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in Q2 2023 as part of OSFI’s implementation of the Basel III reforms.
TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level
which for us is deemed to be Royal Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called aresolution group. The TLAC ratio and TLAC leverage ratio are calculated using the TLAC available as a percentage of total RWA andleverage exposure, respectively.

Regulatory capital and TLAC available

Table 67
As at

(Millions of Canadian dollars)

CET1 capital: instruments and reserves and regulatory adjustments
Directly issued qualifying common share capital (and equivalent for non-joint
stock companies) plus related stock surplus
Retained earnings
Accumulated other comprehensive income (and other reserves)
Directly issued capital subject to phase out from CET1 (only applicable tonon-joint stock companies)
Common share capital issued by subsidiaries and held by third parties(amount allowed in group CET1)
Regulatory adjustments applied to CET1 under Basel III
Common Equity Tier 1 capital (CET1)
Additional Tier 1 capital: instruments and regulatory adjustments
Directly issued qualifying Additional Tier 1 instruments plus related stock
surplus
Directly issued capital instruments to phase out from Additional Tier 1
Additional Tier 1 instruments issued by subsidiaries and held by third parties(amount allowed in group AT1)
Regulatory adjustments applied to Additional Tier 1 under Basel III

October 31

2023

2022

19,365
84,1306,852$

17,16277,859
5,725

–

–

11
(23,747)

11(23,812)$86,611$

76,945

$

7,291
–

$

7,294
–

2
–

3
–

Additional Tier 1 capital (AT1)

$

7,293

$

7,297

Tier 1 capital (T1 = CET1 + AT1)$

93,904$84,242

$

9,683
–

$

8,587
–

Tier 2 capital: instruments and provisions and regulatory adjustments
Directly issued qualifying Tier 2 instruments plus related stock surplus
Directly issued capital instruments subject to phase out from Tier 2Tier 2 instruments issued by subsidiaries and held by third parties (amountallowed in group Tier 2)
Collective allowance
Regulatory adjustments applied to Tier 2 under Basel III

112$

October 31

Tier 2 capital (T2)

$

3
1,362
–
11,048

$

3
1,018
–
9,608

Total capital (T1 + T2)$ 104,952$

93,850External TLAC: instruments and regulatory adjustments
External TLAC instruments
Amortised portion of T2 instruments where remaining maturity > 1 year
Regulatory adjustments applied to TLAC under Basel III$

78,952 $
1,248
(236)

66,528818(235)

TLAC available (Total capital + External TLAC)$ 184,916

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis$

160,9612023 vs. 2022
Continuity of CET1 ratio (Basel III)258 bps(126) bps
79 bps

33 bps(39) bps(20) bps

6 bps

14.5%

Other (6)October 31,
2023 (1)12.6%

October 31,
2022 (1)

(1)
(2)
(3)
(4)
(5)
(6)

Net income

Dividends(Excluding theimpact of theitems, as noted
below)(2), (3)(2)

Basel III
reforms

DRIP (4)RWA Growth Impact of the(excluding CRD and otherFX)
tax related
adjustments(5)

Represents rounded figures.
Represents net internal capital generation of $8 billion or 132 bps consisting of Net income available to shareholders excluding the impact of specified items
and the partial sale of RBC Investor Services operations, less common and preferred share dividends and distributions on other equity instruments.
Excludes specified items for the impact of the CRD and other tax related adjustments, certain deferred tax adjustments, transaction and integration costs
relating to our planned acquisition of HSBC Canada and the impact of impairment losses on our interest in an associated company.
For further details about the Dividend reinvestment plan (DRIP), refer to Note 20 of our 2023 Annual Consolidated Financial Statements.
Includes the impact of the specified item for the impact of the CRD and other tax related adjustments.
Includes the impact of specified items for certain deferred tax adjustments, transaction and integration costs relating to our planned acquisition of HSBC
Canada and the impact of impairment losses on our interest in an associated company, as well as the impact of the partial sale of RBC Investor Services
operations.

Our CET1 ratio was 14.5%, up 190 bps from last year, mainly reflecting net internal capital generation, the favourable impact of theBasel III reforms and share issuances under the DRIP. These factors were partially offset by RWA growth (excluding FX) and theimpact of the CRD and other tax related adjustments.
Our Tier 1 capital ratio of 15.7% was up 190 bps, mainly reflecting the factors noted above under the CET1 ratio.
Our Total capital ratio of 17.6% was up 220 bps, mainly reflecting the factors noted above under the Tier 1 capital ratio and afavourable impact from the net issuance of subordinated debentures.
Our Leverage ratio of 4.3% was down 10 bps, mainly due to the reversal of the regulatory modification for central bank reserves
qualifying as HQLA, business-driven growth in leverage exposures and the impact of the CRD and other tax related adjustments.
These factors were partially offset by net internal capital generation and the impacts of share issuances under the DRIP, thepartial sale of RBC Investor Services operations and the Basel III reforms.
Leverage exposures increased by $282 billion, mainly driven by the reversal of the regulatory modification noted above,
business growth primarily in securities, personal and commercial lending in Canada, repo-style transactions and undrawn
commitments, partially offset by lower interest-bearing deposits with banks and cash. The impact of foreign exchange translation
also contributed to the increase. These factors were partially offset by the impact of the partial sale of RBC Investor Services
operations and the Basel III reforms.
Our TLAC ratio of 31.0% was up 460 bps, reflecting the factors noted above under the Total capital ratio, as well as a favourable
impact from a net increase in eligible external TLAC instruments.
Our TLAC leverage ratio of 8.5% was unchanged, reflecting the factors noted above under the Leverage ratio offset by afavourable impact from a net increase in eligible external TLAC instruments.
External TLAC instruments include long-term senior debt subject to conversion into common shares under the Bail-in regime.
For further details, refer to Deposit and funding profile in the Liquidity and funding risk section.
Basel III RWA
OSFI requires banks to meet minimum risk-based capital requirements for exposures to credit risk, operational risk, and where
they have significant trading activity, market risk. RWA is calculated for each of these risk types and added together to determine
total RWA. In addition, a minimum capital floor requirement must be maintained as prescribed under OSFI’s CAR guidelines which
is currently set to 65% of RWA as calculated under current Basel III standardized credit risk and market risk approaches as
defined in the CAR guidelines. If the capital requirement is less than the required threshold, a floor adjustment to RWA must be
applied to the reported RWA as prescribed by OSFI’s CAR guidelines.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

113

Total capital risk-weighted assets

Table 68
2023

2022

Risk-weighted assets All-in Basis (1)As at October 31 (Millions of Canadian dollars,
except percentage amounts)

Credit risk
Lending-related and other
Residential mortgages
Other retail (personal, credit
cards and small businesstreated as retail)Business (corporate,commercial, medium-sizedenterprises and non-bankfinancial institutions)
Sovereign (government)
Bank$

Averageof risk- Standardized
Exposure (2) weights (3)approach

Advanced
approach(A-IRB)

Foundation
approach(F-IRB)

566,2578% $3,817 $

41,047 $– $– $ 44,864 $

41,662

215,682

29%

5,369

56,345––61,71465,506493,178
348,790
35,75148%
4%
40%

70,1302,767
5,713

93,208
11,251–

75,227
–
8,626

–
–
–

238,565
14,01814,339238,823
15,9105,483

87,796 $ 201,851 $ 83,853 $

Other

Total

Total

Total lending-related and other$ 1,659,658

23% $Trading-related
Repo-style transactions
Derivatives – including CVA$ 1,153,730
129,288

1% $
26%

107 $
568

222 $ 7,367 $96 $ 7,792 $
3,040
15,73013,65732,995

8,668
40,138

Total trading-related$ 1,283,018

3% $

675 $

3,262 $ 23,097 $ 13,753 $ 40,787 $

48,806

Total lending-related and otherand trading-related
Bank book equities
Securitization exposures
Regulatory scaling factor
Other assets$ 2,942,676
4,896
69,736n.a.
32,681

14% $
206%
17%
n.a.
122%

$ 3,049,989

16% $ 103,877 $ 211,291 $106,950 $ 53,724 $ 475,842 $ 496,898

Total credit risk
Market risk
Interest rate
EquityForeign exchange
Commodities
Specific risk
Incremental risk charge$– $ 373,500 $ 367,384

88,471 $ 205,113 $106,950 $ 13,753 $ 414,287 $ 416,190
10,074–––
10,074
5,682
5,332
6,178
–
–
11,51012,543
n.a.
–
–
n.a.
–
18,267
n.a.
n.a.
n.a.
39,971
39,971
44,216

3,575 $
2,534
2,641
1,055
8,276
–

12,831 $
1,125
1,024
102
1,583
5,752

– $
–
–
–
–
–

– $ 16,406 $
–
3,659
–
3,665
–
1,157
–
9,859
–
5,752

13,256
4,001
3,735
1,750
8,411
4,189

Total market risk$

18,081 $22,417 $– $– $ 40,498 $

35,342

Operational risk$

79,883 $– $– $– $ 79,883 $

77,639Total risk-weighted assets
(1)
(2)
(3)
n.a.

$ 3,049,989$ 201,841 $ 233,708 $106,950 $ 53,724 $ 596,223 $ 609,879

Balances as at October 31, 2023 reflect our adoption of the revised CAR guidelines that came into effect in Q2 2023 as part of OSFI’s implementation of the Basel III
reforms.
Total exposure represents exposure at default (EAD) which is the expected gross exposure upon the default of an obligor. This amount excludes any allowance against
impaired loans or partial write-offs and does not reflect the impact of credit risk mitigation.
Represents the average of counterparty risk weights within a particular category.
not applicable2023 vs. 2022
Total RWA was down $14 billion from last year, mainly reflecting the favourable impact of the Basel III reforms. This was partially
offset by the net impact of business growth, primarily in personal and commercial lending in Canada that was partly offset bylower corporate lending and trading related activities. The impact of foreign exchange translation and net credit migration,
primarily in our wholesale portfolios, also partially offset the impact from the Basel III reforms. In our CET1 ratio, the impact offoreign exchange translation on RWA is largely mitigated with economic hedges.

114

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Selected capital management activity
Selected capital management activity

Table 69
For the year ended October 31, 2023

(Millions of Canadian dollars, except number of shares)

Tier 1 capital
Common shares activity
Issued in connection with share-based
compensation plans (1)Issued under the DRIP (2)Tier 2 capitalIssuance of February 1, 2033 subordinateddebentures (3), (4)
(1)
(2)
(3)
(4)

Issuance orredemption date

Number ofshares (000s)

740
16,042January 31, 2023

Amount

$

68
2,012

$ 1,500

Amounts include cash received for stock options exercised during the period and fair value adjustments to stock options.
During the three months ended October 31, 2023, July 31, 2023 and April 30, 2023, the requirements of the DRIP were satisfied
through shares issued from treasury. For further details, refer to Note 20 of our 2023 Annual Consolidated Financial Statements.
For further details, refer to Note 19 of our 2023 Annual Consolidated Financial Statements.
Non-Viability Contingent Capital (NVCC) instruments.

On January 31, 2023, we issued $1,500 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of 5.01%
per annum until February 1, 2028, and at the Daily Compounded Canadian Overnight Repo Rate Average plus 2.12% thereafter
until their maturity on February 1, 2033.
As at October 31, 2023, we did not have an active normal course issuer bid (NCIB).
On November 7, 2023, we redeemed all 15 thousand of our issued and outstanding Non-Cumulative First Preferred Shares
Series C-2 at a redemption price of US$ 1,000 per share. Concurrently, we redeemed all 615 thousand Series C-2 depositary shares,
each of which represents a one-fortieth interest in a Series C-2 share.

Dividends
Our common share dividend policy reflects our earnings outlook, payout ratio objective and the need to maintain adequatelevels of capital to support business plans. In 2023, our dividend payout ratio was 51%. Common share dividends paid during theyear were $7 billion.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

115

Selected share data (1)Table 702023
Number ofshares (000s)(Millions of Canadian dollars, except number of shares
and as otherwise noted)

2022

AmountCommon shares issued
Treasury shares – common shares (2)1,402,373 $ 19,398(1,862)(231)

Common shares outstanding

1,400,511

Stock options and awards
Outstanding
Exercisable
Available for grant

20,00020,00024,00012,0006,000
6,000
14,000750
15Preferred shares and other equity
instruments issued
Treasury instruments – preferred shares andother equity instruments (2)Dividends on common shares
Dividends on preferred shares anddistributions on other equity
instruments (9)
(1)
(2)
(3)
(4)
(5)
(6)

(7)
(8)

(9)

$

5.34

$ 19,167

Number ofshares (000s)

0.93
0.91
0.80
0.75
1.23
1.23
1.20
4.20%
US$ 67.50

20,00020,00024,00012,0006,000
6,000
14,000
750
15

1,750

1,750

4.50%

1,250

1,250

1,000

1,000

$

$

$

$

4.96

$ 16,984

500
500
600
300
150
150
350
750
23

0.93
0.91
0.80
0.75
1.23
1.23
1.20
4.20%
US$ 67.50

1,750

1,750

4.50%

4.00%

1,250

1,250

4.00%

3.65%

1,000

1,000

3.65%

7,323

106,765

(9)

(12)

$

7,314

106,753

$

7,443

(9)
106,756

Dividends
declared
per share

7,535
3,502
4,696
500
500
600
300
150
150
350
750
23

106,765

Amount1,385,591 $ 17,318(2,680)(334)
1,382,911

7,793
3,830
3,693

First preferred shares issued
Non-cumulative Series AZ (3), (4)Non-cumulative Series BB (3), (4)Non-cumulative Series BD (3), (4)Non-cumulative Series BF (3), (4)Non-cumulative Series BH (4)Non-cumulative Series BI (4)Non-cumulative Series BO (3), (4)Non-cumulative Series BT (3), (4), (5)Non-cumulative Series C-2 (6)Other equity instruments issued
Limited recourse capital notes
Series 1 (3), (4), (7), (8)Limited recourse capital notes
Series 2 (3), (4), (7), (8)Limited recourse capital notes
Series 3 (3), (4), (7), (8)Preferred shares and other equity
instruments outstanding

Dividends
declared
per share

236

$

$

$

7,323
(5)

$

7,318

$

6,946
247

For further details about our capital management activity, refer to Note 20 of our 2023 Annual Consolidated Financial Statements.
Positive amounts represent a short position and negative amounts represent a long position.
Dividend rate will reset every five years.
NVCC instruments.
The dividends declared per share represent per annum dividend rate applicable to the shares issued as at the reporting date.
Represents 615,400 depositary shares relating to preferred shares Series C-2. Each depositary share represents one-fortieth interest in a share of Series C-2. On
November 7, 2023, we redeemed all 15 thousand of our issued and outstanding Non-Cumulative First Preferred Shares Series C-2 at a redemption price of US$ 1,000 per
share. Concurrently, we redeemed all 615 thousand Series C-2 depositary shares, each of which represents a one-fortieth interest in a Series C-2 share.
For Limited Recourse Capital Notes (LRCN) Series, the number of shares represent the number of notes issued and the dividends declared per share represent the annualinterest rate percentage applicable to the notes issued as at the reporting date.
In connection with the issuance of LRCN Series 1, on July 28, 2020, we issued $1,750 million of First Preferred Shares Series BQ (Series BQ); in connection with the issuanceof LRCN Series 2, on November 2, 2020, we issued $1,250 million of First Preferred Shares Series BR (Series BR); and in connection with the issuance of LRCN Series 3, on
June 8, 2021, we issued $1,000 million of First Preferred Shares Series BS (Series BS). The Series BQ, BR and BS preferred shares were issued at a price of $1,000 per shareand were issued to a consolidated trust to be held as trust assets in connection with the LRCN structure. For further details, refer to Note 20 of our2023 Annual Consolidated Financial Statements.
Excludes distributions to non-controlling interests.

As at November 24, 2023, the number of outstanding common shares was 1,406,516,221, net of treasury shares held of 2,008,939,
and the number of stock options and awards was 7,776,117.
NVCC provisions require the conversion of the capital instrument into a variable number of common shares in the event that
OSFI deems a bank to be non-viable or a federal or provincial government in Canada publicly announces that a bank has
accepted or agreed to accept a capital injection. If a NVCC trigger event were to occur, our NVCC capital instruments as at
October 31, 2023, which were the preferred shares Series AZ, BB, BD, BF, BH, BI, BO, BT, LRCN Series 1, LRCN Series 2, LRCN
Series 3 and subordinated debentures due on January 27, 2026, July 25, 2029, December 23, 2029, June 30, 2030, January 28, 2033,
November 3, 2031, May 3, 2032 and February 1, 2033 would be converted into common shares pursuant to an automaticconversion formula with a conversion price based on the greater of: (i) a contractual floor price of $5.00, and (ii) the current
market price of our common shares at the time of the trigger event (10-day weighted average). Based on a floor price of $5.00 andincluding an estimate for accrued dividends and interest, these NVCC capital instruments would convert into a maximum of
5,013 million common shares, in aggregate, which would represent a dilution impact of 78.16% based on the number of commonshares outstanding as at October 31, 2023.

116

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Attributed capital
Our methodology for allocating capital to our business segments is based on the Basel III regulatory capital requirements, withthe exception of Insurance. For Insurance, the allocation of capital is based on fully diversified economic capital. Risk-based
capital attribution provides a uniform base for performance measurement among business segments, which compares to ouroverall corporate return objective and facilitates management decisions in resource allocation in conjunction with other factors.
The calculation and attribution of capital involves a number of assumptions and judgments by management which aremonitored to ensure that the regulatory capital framework remains comprehensive and consistent. The models are benchmarked
to leading industry practices via participation in surveys, reviews of methodologies and ongoing interaction with external risk
management industry professionals.
For additional information on the risks highlighted below, refer to the Risk management section.

Royal Bank of
Canada

(1)
(2)

(3)

RWA (C$ millions) (1)Credit$475,842
Market40,498Operational 79,883$596,223

Attributed capital (1)Credit62%
Market5
Operational
10
Goodwilland otherintangibles
17
6
Other (2)Personal &Commercial
Banking

WealthManagement

Insurance

Capital Markets

RWA (C$ millions) (1)Credit$190,334
Market220
Operational 33,217$223,771

RWA (C$ millions) (1)Credit$88,437
Market1,063
Operational 26,031$115,531

RWA (C$ millions) (1), (3)Credit$15,589
Market–Operational–$15,589

RWA (C$ millions) (1)Credit$169,136
Market38,675
Operational 19,727$227,538

Attributed capital (1)Credit68%–
MarketOperational
12
Goodwilland otherintangibles
16
Other (2)4Attributed capital (1)Credit45%–
MarketOperational
12
Goodwilland otherintangibles
39
Other (2)4Attributed capital (1)Based on Economic
Capital:Credit13%
Market16
Operational
8
Goodwilland otherintangibles
1251
Other (2)Attributed capital (1)Credit69%
13
MarketOperational
8
Goodwilland otherintangibles
7
Other (2)3

RWA amount represents period-end spot balances. Attributed Capital represents average balances.
Other includes (a) non-Insurance segments: equity required to underpin Basel III regulatory capital deductions other than Goodwill and other intangibles as well as
capital modifications for expected loss provisioning and (b) Insurance segment: equity required to underpin risks associated with business, fixed assets and insurance
risks.
Insurance RWA represents our investments in the insurance subsidiaries capitalized at the regulatory prescribed rate as required under the OSFI CAR guideline.

Other considerations affecting capital
Capital treatment for equity investments in other entities is determined by a combination of accounting and regulatory
guidelines based on the size or nature of the investment. Three broad approaches apply as follows:•
Consolidation: entities which we control are consolidated on our Consolidated Balance Sheets.
•
Deduction: certain holdings are deducted from our regulatory capital. These include all unconsolidated “substantial
investments”, as defined by the Bank Act (Canada) in the capital of financial institutions, as well as all investments ininsurance subsidiaries and certain equity investments in funds.
•
Risk-weighting: equity investments that are not deducted from capital are risk-weighted at a prescribed rate fordetermination of capital charges.

Regulatory capital approach for securitization exposures
Our securitization regulatory capital approach reflects Chapter 6 of OSFI’s CAR guidelines. For our securitization exposures, weuse an internal assessment approach (IAA) for exposures related to our ABCP business, and as per regulatory guidelines forother securitization exposures we use a combination of approaches including an external ratings-based approach, an IRB
approach and a standardized approach.
While our IAA rating methodologies are based in large part on criteria that are published by External Credit Assessment
Institutions (ECAIs) such as S&P and therefore are similar to the methodologies used by these institutions, they are not identical.
Our ratings process includes a comparison of the available credit enhancement in a securitization structure to a stressed level ofprojected losses. The stress level used is determined by the desired risk profile of the transaction. As a result, we stress the cash
flows of a given transaction at a higher level in order to achieve a higher rating. Conversely, transactions that only pass lower
stress levels achieve lower ratings.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

117

Many of the other securitization exposures (non-ABCP) carry external ratings and we use the external ratings-based
approach, otherwise will follow the SA, for determining the proper capital allocation for these positions. We periodically compare
our own ratings to ECAIs ratings to ensure that the ratings provided by ECAIs are reasonable.
GRM is responsible for providing risk assessments for capital purposes in respect of all our banking book exposures. GRM is
independent of the business originating the securitization exposures and performs its own analysis, sometimes in conjunction
with but always independent of the applicable business. GRM has developed asset class specific criteria guidelines which
provide the rating methodologies for each asset class. The guidelines are reviewed periodically and are subject to the ratings
replication process mandated by Pillar I of the Basel rules.
Regulatory developments
Basel III reforms
On January 31, 2022, OSFI announced revised capital, leverage, liquidity and disclosure guidelines that incorporate the final BCBS
Basel III reforms. OSFI’s first phase of the adoption of the final BCBS Basel III reforms came into effect in Q2 2023 and included
the following notable changes:•
For IRB portfolios, elimination of a 6% regulatory scaling factor applied to RWA generated by internal models andintroduction of prescribed supervisory parameters applicable to certain asset classes within our wholesale portfolio.
•
Adoption of a new operational risk SA framework based on 3 years of average income and 10 years of historical losses.
•
Adoption of a new SA framework enhancing risk sensitivity.
•
Prescribed revisions to the existing regulatory capital floor from 70% to 65% requiring a transition to a new regulatory
capital floor of 72.5% of RWA under the SA by 2026. This new regulatory floor will be transitioned over three years, reflecting
a regulatory capital floor requirement of 67.5%, 70% and 72.5% in fiscal 2024, 2025 and 2026, respectively.
•
Application of a 50 bps leverage ratio buffer to all D-SIBs.
The revised Pillar 3 disclosure requirements that were effective upon adoption of the Basel III reforms are reflected in ourQ2 2023 standalone Pillar 3 Report with further additional updated disclosure requirements reflected in our Q4 2023 Pillar 3
Report.
On November 14, 2023, OSFI released Pillar 3 disclosure requirements related to the second phase of the implementation of the
final BCBS Basel III reforms relating to the revised credit valuation adjustment (CVA) and market risk chapters of the CAR
guideline. The guideline on the revised CVA and market risk chapters of the CAR was effective for us November 1, 2023, and theimpact is not expected to be material.

Revisions to CAR guidelines
On October 20, 2023, OSFI released further revisions to the CAR guidelines which established changes to capital requirements forvariable rate fixed-payment residential mortgages where payments are insufficient to cover the interest component. This
guideline is effective November 1, 2023, and we expect no impact on our capital requirements as we do not originate mortgage
products with a structure that would result in negative amortization.
Accounting and control matters
Critical accounting policies and estimates
Application of critical accounting policies, judgments, estimates and assumptions
Our significant accounting policies are described in Note 2 of our 2023 Annual Consolidated Financial Statements. Certain of
these policies and related estimates are recognized as critical because they require us to make particularly subjective orcomplex judgments about matters that are inherently uncertain and significantly different amounts could be reported under
different conditions or using different assumptions. Our critical accounting judgments, estimates and assumptions relate to thefair value of financial instruments, ACL, goodwill and other intangible assets, employee benefits, consolidation of structured
entities, derecognition of financial assets, application of the effective interest method, provisions, insurance claims and policy
benefit liabilities, and income taxes. Our critical accounting policies and estimates have been reviewed and approved by our
Audit Committee, in consultation with management, as part of their review and approval of our significant accounting policies,
judgments, estimates and assumptions.
Fair value of financial instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. We determine fair value by incorporating factors thatmarket participants would consider in setting a price, including commonly accepted valuation approaches.
We give priority to third-party pricing services and valuation techniques with the highest and most consistent accuracy. The
level of accuracy is determined over time by comparing third-party price values to traders’ or system values, other pricing
service values and, when available, actual trade data. Other valuation techniques are used when a price or quote is not available.
Some valuation processes use models to determine fair value. We have a systematic and consistent approach to control the useof models.
In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority tounobservable inputs. Determination of fair value based on this hierarchy requires the use of observable market data wheneveravailable. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability
to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and model inputs that are either observable, or
can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 inputs include
one or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used
to measure fair value to the extent that observable inputs are not available at the measurement date. The availability of inputs
for valuation may affect the selection of valuation techniques. The classification of a financial instrument in the fair value
hierarchy for disclosure purposes is based upon the lowest level of input that is significant to the measurement of fair value.
118

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Where observable prices or inputs are not available, management judgment is required in the determination of fair values byassessing other relevant sources of information such as historical data, proxy information from similar transactions, and throughextrapolation and interpolation techniques. For more complex or illiquid instruments, significant judgment is required todetermine the model used, the selection of model inputs, and in some cases, the application of valuation adjustments to themodel value or quoted price for inactively traded financial instruments. The selection of model inputs may be subjective and the
inputs may be unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available fromwhich to determine the level at which the transaction would occur under normal business circumstances. Appropriate parameter
uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all
such instances.
Valuation adjustments may be subjective as they require significant judgment in the input selection, such as implied PD andrecovery rate, and are intended to arrive at a fair value that is determined based on assumptions that market participants would
use in pricing the financial instrument. The ultimate realized price for a transaction may differ from its recorded fair value
estimated using management judgment.
For further information on the fair value of financial instruments, refer to Notes 2 and 3 of our 2023 Annual Consolidated
Financial Statements.
Allowance for credit losses
An allowance for credit losses (ACL) is established for all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment
assessment include loans, debt securities, interest-bearing deposits with banks, customers’ liability under acceptances, accounts
and accrued interest receivable, and finance and operating lease receivables. Off-balance sheet items subject to impairment
assessment include financial guarantees and undrawn loan commitments.
We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:•
Performing financial assets•
Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant
increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses
expected to result from defaults occurring over the 12 months following the reporting date.
•Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss
allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.
•
Impaired financial assets•
Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit
losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying
amount of the asset, net of the loss allowance, rather than on its gross carrying amount.
The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevanttime horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn
over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required under
the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the cash
flows used in measuring the lease receivable.
The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.
Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the threestages, the inclusion of forward looking information and the application of expert credit judgment. The underlying assumptions
and estimates may result in changes to the provisions from period to period that significantly affect our results of operations.
For further information on ACL, refer to Notes 2, 4 and 5 of our 2023 Annual Consolidated Financial Statements.
Goodwill and other intangible assets
We allocate goodwill to groups of cash-generating units (CGU). Goodwill is not amortized and is tested for impairment on anannual basis, or more frequently if there are objective indications of impairment. We test for impairment by comparing therecoverable amount of a CGU with its carrying amount.
We estimate the value in use and fair value less costs of disposal of our CGUs primarily using a discounted cash flow method
which incorporates each CGU’s internal forecasts of revenues and expenses. Significant management judgment is applied in thedetermination of expected future cash flows (uncertainty in timing and amount), discount rates (based on CGU-specific risks)
and terminal growth rates. CGU-specific risks include country risk, business/operational risk, geographic risk (including politicalrisk, devaluation risk and government regulation), currency risk and price risk (including product pricing risk and inflation). If the
future cash flows and other assumptions in future periods deviate significantly from the current amounts used in our impairment
testing, the value of our goodwill could become impaired.
We assess for indicators of impairment of our other intangible assets at each reporting period. If there is an indication thatan asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to its
recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate therecoverable amount of the CGU to which the asset belongs. Significant judgment is applied in estimating the useful lives andrecoverable amounts of our intangible assets and assessing whether certain events or circumstances constitute objective
evidence of impairment. We do not have any intangible assets with indefinite lives.
For further details, refer to Notes 2 and 11 of our 2023 Annual Consolidated Financial Statements.
Employee benefits
We sponsor a number of benefit programs for eligible employees, including registered pension plans, supplemental pension
plans, health, dental, disability and life insurance plans.
The calculation of defined benefit expenses and obligations depends on various assumptions such as discount rates,
healthcare cost trend rates, projected salary increases, retirement age, and mortality and termination rates. Discount rates are
determined using a yield curve based on spot rates from high quality corporate bonds. All other assumptions are determined by
us and are reviewed by the actuaries. Actual experience that differs from the actuarial assumptions will affect the amounts ofbenefit obligations and remeasurements that we recognize. The weighted average assumptions used and the sensitivity of key
assumptions are presented in Note 17 of our 2023 Annual Consolidated Financial Statements.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

119Consolidation of structured entities
Subsidiaries are those entities, including structured entities, over which we have control. We control an entity when we areexposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns
through our power over the investee. We have power over an entity when we have existing rights that give us the current ability
to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on thebasis of voting rights or, in the case of structured entities, other contractual arrangements.
We are not deemed to control an entity when we exercise power over an entity as the agent of a third party or parties. In
determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties
to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by otherparties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.
The determination of control is based on the current facts and circumstances and is continuously assessed. In somecircumstances, different factors and conditions may indicate that various parties control an entity depending on whether thosefactors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control
an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether weare exercising our power as a principal or an agent.
We consolidate all subsidiaries from the date we obtain control, and cease consolidation when an entity is no longer
controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and expenses
reported in our Consolidated Financial Statements.
For further details, refer to Note 8 of our 2023 Annual Consolidated Financial Statements.
Derecognition of financial assets
We periodically enter into transactions in which we transfer financial assets such as loans or MBS to structured entities or trusts
that issue securities to investors. We derecognize the assets when our contractual rights to the cash flows from the assets have
expired; when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those cash flows to athird party subject to certain pass-through requirements; or when we transfer our contractual rights to receive the cash flows
and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially all of the risks
and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated Balance Sheets andare accounted for as secured financing transactions. When we neither retain nor transfer substantially all risks and rewards ofownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain control over thetransferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement. Management
judgment is applied in determining whether we have transferred or retained substantially all risk and rewards of ownership of thetransferred financial asset.
The majority of assets transferred under repurchase agreements, securities lending agreements, and in our Canadianresidential mortgage securitization transactions do not qualify for derecognition. As a result, we continue to record theassociated transferred assets on our Consolidated Balance Sheets and no gains or losses are recognized for those securitization
activities. Otherwise, a gain or loss is recognized on securitization by comparing the carrying amount of the transferred asset
with its fair value at the date of the transfer. For further information on derecognition of financial assets, refer to Notes 2 and 7 ofour 2023 Annual Consolidated Financial Statements.
Application of the effective interest method
Interest is recognized in Interest income and Interest expense in the Consolidated Statements of Income generally for all interest
bearing financial instruments using the effective interest method. The effective interest rate is the rate that discounts estimatedfuture cash flows over the expected life of the financial asset or liability to the net carrying amount upon initial recognition.
Significant judgment is applied in determining the effective interest rate due to uncertainty in the timing and amounts of future
cash flows.
Provisions
Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the consideration
required to settle the present obligation at the reporting date. Significant judgment is required in determining whether a present
obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions related to litigation,asset retirement obligations and other items.
The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting the timing
and amount of future cash flows. We record our provisions on the basis of all available information at the end of the reporting
period and make adjustments on a quarterly basis to reflect current expectations. Should actual results differ from our
expectations, we may incur expenses in excess of the provisions recognized.
Insurance claims and policy benefit liabilities
Insurance claims and policy benefit liabilities represent current claims and estimates for future insurance policy benefits.
Liabilities for life insurance contracts are determined using the Canadian Asset Liability Method, which incorporates
assumptions for mortality, morbidity, policy lapses and surrenders, investment yields, policy dividends, operating and policy
maintenance expenses, and provisions for adverse deviation. These assumptions are reviewed at least annually and updated in
response to actual experience and market conditions. Liabilities for property and casualty insurance represent estimatedprovisions for reported and unreported claims. Liabilities for life and property and casualty insurance are included in Insurance
claims and policy benefit liabilities. Changes in Insurance claims and policy benefit liabilities are included in the Insurance
policyholder benefits, claims and acquisition expense in our Consolidated Statements of Income in the period in which theestimates change. Refer to Note 15 of our 2023 Annual Consolidated Financial Statements for further information.
Income taxes
We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially subject todifferent interpretations by us and the relevant taxation authority. Management judgment is applied in interpreting the relevant
tax laws, in assessing the probability of acceptance of our tax positions by the relevant tax authorities and in estimating the120

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

expected timing and amount of the provision for current and deferred income taxes. A deferred tax asset or liability is determinedfor each temporary difference based on the tax rates that are expected to be in effect in the period that the asset is realized or
the liability is settled, except for earnings related to our subsidiaries, branches, associates and interests in joint ventures where
the temporary differences will not reverse in the foreseeable future and we have the ability to control the timing of reversal.
On a quarterly basis, we review whether it is probable that the benefits associated with our deferred tax assets will be
realized, using both positive and negative evidence. Refer to Note 22 of our 2023 Annual Consolidated Financial Statements forfurther information.
Future changes in accounting policy and disclosure
IFRS 17 Insurance Contracts (IFRS 17)
In May 2017, the IASB issued IFRS 17 to establish a comprehensive insurance standard which provides guidance on therecognition, measurement, presentation and disclosure of insurance contracts issued and reinsurance contracts held and will
replace the existing IFRS 4 Insurance Contracts (IFRS 4). In June 2020, the IASB issued amendments to IFRS 17, including deferralof the effective date by two years. This new standard is effective for us on November 1, 2023 and is to be applied retrospectively
with comparatives restated beginning November 1, 2022.
Under IFRS 17, insurance contracts are contracts under which we accept significant insurance risk from a policyholder byagreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. Embedded
derivatives, investment components and promises to provide non-insurance services, provided specific criteria are met, areseparated from the measurement of insurance and reinsurance contracts. Insurance and reinsurance contracts are aggregatedinto portfolios that are subject to similar risks and are managed together, and then divided into groups based on the period of
issuance and expected profitability. Groups are separately recognized and measured using one of three measurement models
depending on the characteristics of the contracts:•
For insurance contracts with direct participating features, the contracts are measured using the variable fee approach(VFA).
•For insurance contracts and reinsurance contracts held with a short duration of one year or less, the premium allocation
approach (PAA) is elected.
•
The general measurement method (GMM) is applied to all remaining contracts.
Under the GMM and VFA, the liabilities for remaining coverage and incurred claims for groups of contracts are measured as
the sum of the fulfilment cash flows and the contractual service margin (CSM), which are recalculated at the end of eachreporting period. The fulfilment cash flows consist of the present value of future cash flows and a risk adjustment for
non-financial risk. For insurance contracts, the CSM represents the unearned profit for providing insurance coverage. For
reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance. Under the PAA, the liability forremaining coverage for each group is measured as the premiums received less insurance revenue recognized for services
provided, while the liability for incurred claims is measured as the fulfillment cash flows for incurred claims plus adjustment on
any financing components. Losses from the recognition of onerous groups of insurance contracts, regardless of themeasurement model applied, are recognized in the Consolidated Statements of Income immediately.
The following are key differences between IFRS 17 and IFRS 4:•
New business profits are deferred and measured as the CSM of the insurance contract liabilities and amortized into income
as insurance contract services are provided, while losses are recognized into income immediately. Under IFRS 4, gains andlosses are recognized in income immediately. On July 18, 2023, OSFI released regulatory guidance to allow the inclusion of
the CSM in calculating CET1 capital and related ratios, therefore, there will be no impact on the capital metrics from such
reduction in retained earnings resulting from the CSM.
•
Discount rates used in calculating the present value of insurance contract liabilities are based on the characteristics of theinsurance contracts unlike IFRS 4 which is based on the assets supporting the liabilities.
•
Presentation and disclosure changes are expected due to the new requirements.
While IFRS 17 impacts the timing of profit recognition of insurance contracts, it will have no impact on total profit recognized overthe lifetime of these contracts.
Governance
We are in the final stage of implementation for IFRS 17. As part of the implementation process, a comprehensive program andgovernance structure led by Finance and the Insurance business was established to focus on the evaluation of the impacts of thestandard and implementation of policies, systems and processes required for the adoption. Regular updates are provided tosenior management as well as the Audit Committee and Board of Directors to ensure escalation of key issues and risks. We haveenhanced existing controls, and designed and operationalized new controls and governance procedures to support theimplementation of IFRS 17, including controls over data and systems, key assumptions and measurement approaches.
Impact of IFRS 17 transition excluding the impact of reclassifications of financial assets
Upon the adoption of IFRS 17, we will apply IFRS 17 retrospectively by adjusting our Consolidated Balance Sheets as at
November 1, 2022 and restating comparative information. The full retrospective approach will be applied for all insurance andreinsurance contracts unless it is impracticable to do so. The full retrospective approach is applied to all contracts measured
using the PAA and all new contracts issued on and after November 1, 2022 measured using the GMM and VFA as if IFRS 17 hadalways been applied. Due to data availability and the inability to use hindsight, the fair value approach is applied to contracts
issued before November 1, 2022 that are measured under the GMM and VFA. Under the fair value approach, the CSM of theliability for remaining coverage is calculated as the difference between the fair value of a group of contracts and the fulfillment
cash flows measured at the date of transition.
Based on current estimates, the adoption of IFRS 17 is expected to result in a reduction in retained earnings of approximately$2.4 billion, net of taxes, as at November 1, 2022. This is attributable to the establishment of the CSM and other remeasurementchanges to insurance and reinsurance contracts and related tax effects. The estimated CSM of all insurance contracts net ofreinsurance contracts held as at November 1, 2022 was approximately $1.8 billion. The net impact to our CET1 ratio is not expected
to be material. These estimates are subject to change as we finalize the quantitative impacts of the adoption in the first quarterof 2024.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

121

Impact of reclassifications of financial assets
As permitted by IFRS 17, we will change the classification and measurement of certain eligible financial assets held in respect ofan activity that relates to insurance contracts upon the adoption of IFRS 17. We will apply these changes retrospectively byadjusting our Consolidated Balance Sheets as at November 1, 2023 with no restatement of comparative information. We expect toreclassify financial assets between fair value classification categories, which is not expected to have a net impact to total equity
nor the carrying amounts of those assets. Similarly, no net impact to our CET1 ratio is expected. This is subject to change as we
finalize the quantitative impacts of these changes and the quantitative impacts of adopting IFRS 17 in the first quarter of 2024.
Controls and procedures
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed
by us in reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported
within the time periods specified under those laws and include controls and procedures that are designed to ensure that
information is accumulated and communicated to management, including the President and Chief Executive Officer, and theChief Financial Officer, to allow timely decisions regarding required disclosure.
As of October 31, 2023, management evaluated, under the supervision of and with the participation of the President and Chief
Executive Officer and the Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined underrules adopted by the Canadian securities regulatory authorities and the U.S. SEC. Based on that evaluation, the President andChief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
October 31, 2023.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with IFRS. However, because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements on a timely basis. See Management’s Report on
Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm.
There were no changes in our internal control over financial reporting during the year ended October 31, 2023 that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Related party transactions
In the ordinary course of business, we provide normal banking services and operational services, and enter into othertransactions with associated and other related corporations, including our joint venture entities, on terms similar to thoseoffered to non-related parties. We grant loans to directors, officers and other employees at rates normally accorded to preferredclients. In addition, we offer deferred share and other plans to non-employee directors, executives and certain other key
employees. For further information, refer to Notes 12 and 26 of our 2023 Annual Consolidated Financial Statements.
Supplementary information
Selected annual information

Table 71
2023

(Millions of Canadian dollars, except per share amounts)

Total revenue
Net income attributable to:Shareholders
Non-controlling interest$

Basic earnings per share
Diluted earnings per share
Dividends declared per common shares
Total assets
Deposits

Royal Bank of Canada: Annual Report 2023

2022$

14,8597$

12256,129Management’s Discussion and Analysis

2021$

15,794
13

14,866

$

10.51
10.50
5.34
$ 2,004,992
1,231,687$$

48,98549,693
16,03812

15,807

$

11.08
11.06
4.96
$ 1,917,219
1,208,814$

16,050

11.08
11.06
4.32
$ 1,706,323
1,100,831

Net interest income on average assets and liabilities

Table 72
Average balances(Millions of Canadian dollars, except for percentage amounts) (1)Assets
Deposits with other banks
CanadaU.S.
Other International$

Securities
Trading
Investment, net of applicable allowance

Asset purchased under reverse repurchase agreements and securities borrowed
Loans (2)CanadaRetailWholesale
U.S.
Other International

Total interest-earning assets
Non-interest-bearing deposits with other banks
Customers’ liability under acceptances
Other assets

Interest

2023

2022

13,607 $88,774
15,402

13,11981,962
22,819117,783

117,900

154,741
180,174

Average rate

2023

2022

2023

2022

1,698 $
3,963
1,191

582
911
204

12.48%
4.46
7.73

4.44%
1.11
0.89

6,852

1,697

5.82

1.44

135,117150,384

7,465
7,047

4,754
2,308

4.82
3.91

3.52
1.53

334,915

285,501

14,512

7,062

4.33

2.47

383,246

360,068

22,164

5,447

5.78

1.51

502,459
120,047

478,696
103,034

23,862
8,878

15,146
5,344

4.75
7.40

3.16
5.19

622,506
158,443
50,782581,730
136,937
49,63032,7406,891
3,832

20,490
4,037
2,038

5.26
4.35
7.55

3.52
2.95
4.11

831,731

768,297

43,463

26,565

5.23

3.46

1,667,675
71,95919,912
243,328

1,531,766
99,564
18,354
237,167

86,991–––

40,771
–
–
–

5.22
–
–
–

2.66
–
–
–

$

Total assets$ 2,002,874 $ 1,886,851$ 86,991 $ 40,771

4.34%

2.16%

Liabilities and shareholders’ equity
Deposits (3)CanadaU.S.
Other International$

684,452
153,039
101,058$ 27,627 $
5,383
3,669

8,660
1,044
1,047

3.59%
3.50
3.92

1.27%
0.68
1.04

1,017,805

938,549

36,67910,7513.60

1.15

36,36539,079

2,933

2,409

8.07

6.16

352,282
11,036
37,639315,871
10,13326,00020,433
666
1,151

4,351
288
255

5.80
6.03
3.06

1.38
2.84
0.98

1,455,127
193,815
19,954
223,121

1,329,632
226,376
18,409209,890

61,862–––

18,054
–
–
–

4.25
–
–
–

1.36
–
–
–

$ 61,862 $ 18,054

3.27%

1.01%

Obligations related to securities sold short
Obligations related to assets sold under repurchase agreements and securities
loanedSubordinated debentures
Other interest-bearing liabilities
Total interest-bearing liabilities
Non-interest-bearing deposits
Acceptances
Other liabilities

770,309 $153,838
93,658

Total liabilities$ 1,892,017 $ 1,784,307

Equity$Total liabilities and shareholders’ equity
Net interest income and margin
Net interest income and margin (average earning assets, net) (4)CanadaU.S.
Other International
Total
(1)
(2)
(3)

(4)
n.a.

110,857 $

n.a.

n.a.

n.a.

$ 2,002,874 $ 1,886,851$ 61,862 $ 18,054

3.09%

0.96%

$ 2,002,874 $ 1,886,851$ 25,129 $ 22,717

1.25%

1.20%

$

870,147
437,357
224,261$ 18,752 $ 15,761
5,065
5,423
1,312
1,533

1.93%
1.02
0.63

1.81%
1.24
0.68

$ 1,676,020 $ 1,531,765$ 25,129 $ 22,717

1.50%

1.48%

970,243 $
497,556
208,221102,544n.a.

Insurance segment assets and liabilities are included in Other assets and Other liabilities, respectively.
Interest income includes loan fees of $1,149 million (2022 – $1,033 million; 2021 – $888 million).
Deposits include personal chequing and savings deposits with average balances of $250 billion (2022 – $279 billion; 2021 – $258 billion), interest expense of $2,840 million(2022 – $712 million; 2021 – $175 million) and average rates of 1.14% (2022 – 0.26%; 2021 – 0.07%). Deposits also include term deposits with average balances of $624 billion(2022 – $500 billion; 2021 – $437 billion), interest expense of $24,260 million (2022 – $7,323 million; 2021 – $4,487 million) and average rates of 3.89% (2022 – 1.46%;2021 – 1.03%).
Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.
not applicable

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

123

Change in net interest income

Table 732023 vs. 2022

2022 vs. 2021

Increase (decrease) due tochanges in

Increase (decrease) due tochanges in

Averagevolume (2)(Millions of Canadian dollars) (1)Assets
Deposits with other banks
Canada (3)U.S. (3)Other international (3)Securities
Trading
Investment, net of applicable allowance
Asset purchased under reverse repurchaseagreements and securities borrowed
Loans
Canada (3)Retail (3)Wholesale (3)U.S. (3)Other international (3)Total interest income$$

Liabilities
Deposits
Canada (3)U.S. (3)Other international (3)Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities loaned
Subordinated debentures
Other interest-bearing liabilities

Averagerate (2)Averagevolume (2)Net change

$

1,116
3,052
987

$

1,094
2,976
1,053

690
457

2,021
4,282

2,711
4,739

178
163

840
1,004

1,018
1,167

351

16,366

16,717

173

3,965

4,138

752
882
634
47

7,964
2,652
2,220
1,747

8,716
3,534
2,854
1,794

1,155
657
695
346

333
1,130
462
133

1,488
1,787
1,157
479

3,845

$ 42,375$ 46,220

1,086
5
(77)
(167)

17,881
4,334
2,699
691

18,967
4,339
2,622
524

434
35
20
297

3,526
778
510
303

3,960
813
530
600

502
26
114

15,580352
782

16,082
378
896

83
19
14

3,694
90
108

3,777
109
122

3,424

$

$

451
820
64

Net change

22 $
76
(66)

$

25
28
4

Averagerate (2)

9,202

$

476
848
68

$

12,626

Total interest expense

$

1,489

$ 42,319$ 43,808

$

902

$

9,009

$

9,911

Net interest income

$

2,356

$

$

$

2,522

$

193

$

2,715

(1)
(2)
(3)

56

2,412

Insurance segment assets and liabilities are included in Other assets and Other liabilities, respectively.
Volume/rate variance is allocated on the percentage relationships of changes in balances and changes in rates to the total net change in net interest income.
Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.

Loans and acceptances by geography

Table 742023

As at October 31 (Millions of Canadian dollars)

Canada (1)Residential mortgages
Personal
Credit cards
Small business$ 397,605
79,70522,14013,681RetailWholesale
U.S. (1)RetailWholesale
Other International (1)RetailWholesale
Total loans and acceptances

Geographic information is based on residence of borrower.

Royal Bank of Canada: Annual Report 2023

495,666
126,751$

Management’s Discussion and Analysis

622,41747,402
114,799

169,126

162,201

6,762
47,028

6,683
50,28953,79056,972$(5,054)

Total loans and acceptances, net of allowance for credit losses

383,797
79,422
19,77812,66950,058
119,068$ 879,522

Total allowance for credit losses

124$

513,131
143,475$ 656,606

(1)

2022

$ 874,468

841,590(3,798)$

837,792

Loans and acceptances by portfolio and sector

Table 752023

As at October 31 (Millions of Canadian dollars)

Residential mortgages
Personal
Credit cards
Small business
RetailAgriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors

2022$ 434,501
98,73423,035
13,681$

418,796
97,70920,577
12,669$ 569,951$

549,751

11,026
11,503
7,146
17,5468,463
6,421
38,02913,683
1,428
5,767
11,057
5,096
18,212
1,858
2,970
90,981
27,048
8,507
8,038
13,978814

10,105
8,770
7,016
19,4056,940
5,959
41,353
13,781
1,094
5,632
10,537
5,232
19,952
2,223
3,006
79,506
24,393
7,176
6,542
11,847
1,370

Wholesale$ 309,571$

291,839

Total loans and acceptances$ 879,522$

841,590

Total allowance for credit losses(5,054)

Total loans and acceptances, net of allowance for credit losses

Management’s Discussion and Analysis$ 874,468(3,798)$

837,792

Royal Bank of Canada: Annual Report 2023

125

Gross impaired loans by portfolio and geography

Table 762023

As at October 31 (Millions of Canadian dollars, except for percentage amounts)

Residential mortgages
Personal
Small business$

Retail

682
280
244

2022
$

1,206

Agriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors

$

36
26
3
315
148
17
85
–
9
16
147
26
96
1
15
1,104
180
186
59
–
24

898
$

2,493

Wholesale
Acquired credit-impaired loans

560
200
138
18
9
1
254
122
57
96
–
7
3
77
5
9
12
16
322
246
8
6
–
27
1,295

5

Total GIL (1)Canada (2)Residential mortgages
Personal
Small business

6

$

3,704

$

2,199

$

481
247
244

$

352
174
138

RetailAgriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors
Wholesale

972

664

16
24
3
195
55
17
–
–
9
13
42
8
20
1
10
168
72
4
27
–
1

17
6
1
69
40
10
4
–
7
3
28
3
2
4
7
88
56
5
6
–
–

685

356

Total

$

1,657

$

1,020

U.S. (2)RetailWholesale

$

53
1,469

$

34
674

Total

$

1,522

$

708

Other International (2)RetailWholesale

$

181
344

$

200
271

Total

$

525

$

471

Total GIL

$

3,704

$

2,199

$

1,530

Allowance on impaired loans(1,148)Net impaired loans$

GIL as a % of loans and acceptances
Residential mortgages
Personal
Small business
RetailWholesale
Total
Allowance on impaired loans as a % of GIL
(1)
(2)
126

2,556

(669)

0.16%
0.28%
1.78%

0.13%
0.20%
1.09%

0.21%
0.81%

0.16%
0.45%

0.42%

0.26%

31.00%

30.41%

Past due loans greater than 90 days not included in impaired loans were $257 million in 2023 (2022 – $170 million). For further details, refer to Note 5 of our 2023 Annual
Consolidated Financial Statements.
Geographic information is based on residence of borrower.
Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

Provision for credit losses by portfolio and geography

Table 772023

For the year ended October 31 (Millions of Canadian dollars, except for percentage amounts)

Residential mortgages
Personal
Credit cards
Small business$

Retail

63
467
460
61

2022
$

1,051

Agriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors$

Wholesale

20
8
–
143
51
11
10
–
5
(1)
56
12
15
(1)
(3)
222
72
85
74
–
6

648
$

785

Acquired credit-impaired loans
Canada (1)Residential mortgages
Personal
Credit cards
Small business

1
3
(3)
47
35
(2)
3
–
1
(1)
(6)
(8)
3
9
5
32
25
(1)
(16)
1
3
131

–

Total PCL on impaired loans

13
259
333
43

(1)

$

1,836

$

778

$

61
463
449
61

$

15
271
326
43

RetailAgriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors
Wholesale

1,034

655

4
7
–
101
34
(2)
1
–
5
(1)
16
2
8
–
2
41
12
1
9
–
(1)

1
3
1
36
9
(21)
1
–
1
(1)
9
1
2
2
–
23
9
1
1
–
–

239

78

Total

$

1,273

$

733

U.S. (1)RetailWholesale

$

17
509

$

2
68

Total

$

526

$

70

Other International (1)RetailWholesale

$

–
37

$

(9)
(16)

Total

$

37

$

(25)

Total PCL on impaired loans

$

1,836

$

778

Total PCL on performing loans

660

Total PCL on other financial assets(28)

Total PCL

$

2,468

(281)
(13)
$

484

PCL on loans as a % of average net loans and acceptances

0.29%

0.06%

PCL on impaired loans as a % of average net loans and acceptances (1)

0.21%

0.10%

(1)

Geographic information is based on residence of borrower.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

127

Allowance on loans by portfolio and geography (1)Table 782023

As at and for the year ended October 31 (Millions of Canadian dollars, except percentage amounts)

2022

Allowance against impaired loans
Canada (2)Residential mortgages
Personal
Small business

$

86
138
58

$

44
85
48

Retail

$

282

$

177

$

4
5
1
85
30
4
1
–
3
–
18
2
7
1
5
41
5
1
8
–
–

$

2
4
–
27
10
7
1
–
1
1
12
2
1
2
4
25
12
1
3
–
–

Agriculture
Automotive
Banking
Consumer discretionary
Consumer staples
Oil and gas
Financial services
Financing products
Forest products
Governments
Industrial products
Information technology
Investments
Mining and metals
Public works and infrastructure
Real estate and related
Other services
Telecommunication and media
Transportation
Utilities
Other sectors
Wholesale

$

221

$

115

Total

$

503

$

292

U.S. (2)RetailWholesale

$

7
445

$

2
175

Total

$

452

$

177

Other International (2)RetailWholesale

$

92
101

$

98
102

Total

$

193

$

200

Total allowance on impaired loans

$

1,148

$

669

$

313
1,073
1,069
136

$

300
946
893
146

Allowance on performing loans
Residential mortgages
Personal
Credit cards
Small business
Retail

$

2,591

$

2,285

Wholesale

$

1,609

$

1,227

Total allowance on performing loans

$

4,200

$

3,512

Total allowance on loans

$

5,348

$

4,181

Key ratios
Allowance on loans as a % of loans and acceptances
Net write-offs as a % of average net loans and acceptances
(1)
(2)

128

Includes loans, acceptances, and commitments.
Geographic information is based on residence of borrower.

Royal Bank of Canada: Annual Report 2023

Management’s Discussion and Analysis

0.61%
0.14%

0.50%
0.10%

Credit quality information by Canadian province (1)Table 79
2023

As at and for the year ended October 31 (Millions of Canadian dollars)

Loans and acceptances
Atlantic provinces (2)QuebecOntario
Alberta
Other Prairie provinces (3)B.C. and territories (4)$Total loans and acceptances in Canada
Gross impaired loans
Atlantic provinces (2)QuebecOntario
Alberta
Other Prairie provinces (3)B.C. and territories (4)Total GIL in Canada
PCL on impaired loans
Atlantic provinces (2)QuebecOntario
Alberta
Other Prairie provinces (3)B.C. and territories (4)Total PCL on impaired loans in Canada
(1)
(2)
(3)
(4)

2022

32,51376,204
321,139
76,01836,076
114,656$

30,70973,743
300,477
73,63835,699108,151$ 656,606$

622,417

$

122
275
689
260
137
174

$

65
172
323
233
121
106

$

1,657

$

1,020

$

52
81
901
99
55
85

$

20
47
529
48
39
50

$

1,273

$

733

Geographic information is based on residence of borrower.
Comprises Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick.
Comprises Manitoba and Saskatchewan.
Comprises British Columbia, Nunavut, Northwest Territories and Yukon.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

129

Glossary
Acceptances
A bill of exchange or negotiable instrument
drawn by the borrower for payment atmaturity and accepted by a bank. The
acceptance constitutes a guarantee of
payment by the bank and can be traded in themoney market. The bank earns a “stampingfee” for providing this guarantee.
Allowance for credit losses (ACL)
The amount deemed adequate bymanagement to absorb expected credit losses
as at the balance sheet date. The allowance isestablished for all financial assets subject toimpairment assessment, including certain
loans, debt securities, customers’ liability
under acceptances, financial guarantees, andundrawn loan commitments. The allowance ischanged by the amount of provision for credit
losses recorded, which is charged to income,and decreased by the amount of write-offs netof recoveries in the period.

Commercial mortgage-backed securities(CMBS)
Securities created through the securitizationof commercial mortgages.
Commitments to extend credit
Unutilized amount of credit facilities available
to clients either in the form of loans, bankers’
acceptances and other on-balance sheet
financing, or through off-balance sheet
products such as guarantees and letters ofcredit.
Common Equity Tier 1 (CET1) capitalA regulatory Basel III capital measurecomprised mainly of common shareholders’equity less regulatory deductions andadjustments for goodwill and intangibles,
defined benefit pension fund assets, shortfall
in allowances and other specified items.

ACL on loans ratio
ACL on loans ratio is calculated as ACL on
loans as a percentage of total loans andacceptances.

Common Equity Tier 1 capital ratio
A risk-based capital measure calculated as
CET1 capital divided by risk-weighted assets.

Asset-backed securities (ABS)
Securities created through the securitizationof a pool of assets, for example auto loans or
credit card loans.

Covered bonds
Full recourse on-balance sheet obligations
issued by banks and credit institutions thatare fully collateralized by assets over whichinvestors enjoy a priority claim in the event of
an issuer’s insolvency.

Assets under administration (AUA)
Assets administered by us, which are
beneficially owned by clients, unless otherwise
noted. Services provided in respect of assets
under administration are of an administrative
nature, including safekeeping, collecting
investment income, settling purchase and saletransactions, and record keeping.
Assets under management (AUM)
Assets managed by us, which are beneficiallyowned by clients, unless otherwise noted.
Services provided in respect of assets undermanagement include the selection of
investments and the provision of investment
advice. We have assets under managementthat are also administered by us and included
in assets under administration.
Attributed capital
Attributed capital is based on the Basel III
regulatory capital requirements for all ourbusiness segments other than insurance forwhich we attribute capital based on economic
capital.
Auction rate securities (ARS)
Debt securities whose interest rates are
regularly reset through an auction process.
Average earning assets, net
Average earning assets include interestbearing deposits with other banks, securities,
net of applicable allowance, assets purchased
under reverse repurchase agreements andsecurities borrowed, loans, net of allowance,
cash collateral and margin deposits. Insurance
assets, and all other assets not specified are
excluded. The averages are based on the dailybalances for the period.
Basis point (bp)One one-hundredth of a percentage point(.01%).
Collateral
Assets pledged as security for a loan or otherobligation. Collateral can take many forms,
such as cash, highly rated securities, property,
inventory, equipment and receivables.
Collateralized debt obligation (CDO)
Securities with multiple tranches that areissued by structured entities andcollateralized by debt obligations including
bonds and loans. Each tranche offers a varying
degree of risk and return so as to meetinvestor demand.
130

Royal Bank of Canada: Annual Report 2023

Credit default swaps (CDS)
A derivative contract that provides thepurchaser with a one-time payment should thereferenced entity/entities default (or a similar
triggering event occur).
Derivative
A contract between two parties, which
requires little or no initial investment andwhere payments between the parties are
dependent upon the movements in price of anunderlying instrument, index or financial rate.
Examples of derivatives include swaps,
options, forward rate agreements and futures.
The notional amount of the derivative is thecontract amount used as a reference point tocalculate the payments to be exchanged
between the two parties, and the notionalamount itself is generally not exchanged by
the parties.
Dividend payout ratio
Common dividends as a percentage of net
income available to common shareholders.
Dividend yield
Dividends per common share divided by theaverage of the high and low share price in therelevant period.
Earnings per share (EPS), basic
Calculated as net income available to commonshareholders divided by the average numberof shares outstanding.
Earnings per share (EPS), diluted
Calculated as net income available to commonshareholders divided by the average numberof shares outstanding adjusted for the dilutive
effects of stock options and other convertible
securities.
Efficiency ratio
Non-interest expense as a percentage of total
revenue.
Expected credit losses
The difference between the contractual cash
flows due to us in accordance with therelevant contractual terms and the cash flowsthat we expect to receive, discounted to thebalance sheet date.
Management’s Discussion and Analysis

Fair value
Fair value of a financial instrument is the pricethat would be received to sell an asset or paid
to transfer a liability in an orderly transaction
between market participants at themeasurement date.
Funding valuation adjustment
Funding valuation adjustments are calculated
to incorporate cost and benefit of funding in
the valuation of uncollateralized and undercollateralized OTC derivatives. Future
expected cash flows of these derivatives are
discounted to reflect the cost and benefit offunding the derivatives by using a funding
curve, implied volatilities and correlations as
inputs.
Guarantees and standby letters of credit
These primarily represent irrevocableassurances that a bank will make payments inthe event that its client cannot meet its
financial obligations to third parties. Certain
other guarantees, such as bid andperformance bonds, represent non-financial
undertakings.
Hedge
A risk management technique used to mitigate
exposure from market, interest rate or foreign
currency exchange risk arising from normalbanking operations. The elimination or
reduction of such exposure is accomplished byestablishing offsetting positions. For example,
assets denominated in foreign currencies canbe offset with liabilities in the same currencies
or through the use of foreign exchange
hedging instruments such as futures, options
or foreign exchange contracts.
Hedge funds
A type of investment fund, marketed toaccredited high net worth investors, that is
subject to limited regulation and restrictions
on its investments compared to retail mutual
funds, and that often utilize aggressive
strategies such as selling short, leverage,
program trading, swaps, arbitrage andderivatives.
High-quality liquid assets (HQLA)HQLA are cash or assets that can be converted
into cash quickly through sales (or by being
pledged as collateral) with no significant lossof value.
Impaired loans
Loans are classified as impaired when there
has been a deterioration of credit quality to
the extent that management no longer has
reasonable assurance of timely collection of
the full amount of principal and interest inaccordance with the contractual terms of theloan agreement. Credit card balances are notclassified as impaired as they are directly
written off after payments are 180 days pastdue.
International Financial Reporting Standards(IFRS)IFRS are principles-based standards,
interpretations and the framework adopted by
the International Accounting Standards Board.
Leverage ratio
A Basel III regulatory measure, the ratio
divides Tier 1 capital by the sum of total assets
plus specified off-balance sheet items. The
leverage ratio is a non-risk based measure.
Liquidity Coverage Ratio (LCR)
The Liquidity Coverage Ratio is a Basel III
metric designed to ensure banks hold asufficient reserve of high-quality liquidity
assets (HQLA) to allow them to service aperiod of significant liquidity stress lasting
30 calendar days.

Loan-to-value (LTV) ratio
Calculated based on the total facility amountfor the residential mortgage and RBC
Homeline Plan product divided by the value ofthe related residential property.
Master netting agreement
An agreement between us and a counterparty
designed to reduce the credit risk of multiple
derivative transactions through the creation ofa legal right of offset of exposure in the eventof a default.
Net interest income
The difference between what is earned on
assets such as loans and securities and what
is paid on liabilities such as deposits andsubordinated debentures.
Net interest margin (NIM) on average
earning assets, net
Calculated as net interest income divided byaverage earning assets, net.
Net Stable Funding Ratio (NSFR)The Net Stable Funding Ratio is a Basel III
metric defined as the amount of available
stable funding (ASF) relative to the amount ofrequested stable funding (RSF). The ratio
should be at least equal to 100% on an ongoingbasis.
Normal course issuer bid (NCIB)
A program for the repurchase of our own
shares for cancellation through a stock
exchange that is subject to the various rules of
the relevant stock exchange and securities
commission.
Notional amountThe contract amount used as a reference point
to calculate payments for derivatives.
Off-balance sheet financial instruments
A variety of arrangements offered to clients,
which include credit derivatives, written put
options, backstop liquidity facilities, stablevalue products, financial standby letters ofcredit, performance guarantees, credit
enhancements, mortgage loans sold withrecourse, commitments to extend credit,
securities lending, documentary andcommercial letters of credit, sponsor member
guarantees, securities lendingindemnifications and indemnifications.
Office of the Superintendent of Financial
Institutions Canada (OSFI)The primary regulator of federally charteredfinancial institutions and federally
administered pension plans in Canada. OSFI’s
mission is to safeguard policyholders,
depositors and pension plan members fromundue loss.
Operating leverage
The difference between our revenue growthrate and non-interest expense growth rate.
Options
A contract or a provision of a contract thatgives one party (the option holder) the right,
but not the obligation, to perform a specified
transaction with another party (the option
issuer or option writer) according to specified
terms.
Provision for credit losses (PCL)
The amount charged to income necessary tobring the allowance for credit losses to a level
determined appropriate by management. This
includes provisions on performing andimpaired financial assets.

RBC Homeline Plan productsThis is comprised of residential mortgages andsecured personal loans whereby the borrower
pledges real estate as collateral.
Repurchase agreements
These involve the sale of securities for cash
and the simultaneous repurchase of the
securities for value at a later date. Thesetransactions normally do not constituteeconomic sales and therefore are treated ascollateralized financing transactions.
Return on common equity (ROE)
Net income available to commonshareholders, expressed as a percentage of
average common equity.
Reverse repurchase agreements
These involve the purchase of securities forcash and the simultaneous sale of the
securities for value at a later date. Thesetransactions normally do not constituteeconomic sales and therefore are treated ascollateralized financing transactions.
Risk-weighted assets (RWA)
Assets adjusted by a regulatory risk-weightfactor to reflect the riskiness of on andoff-balance sheet exposures. Certain assets
are not risk-weighted, but deducted from
capital. The calculation is defined by OSFI’s
Capital Adequacy Requirements guidelines.
For more details, refer to the Capitalmanagement section.
Securities lending
Transactions in which the owner of securities
agrees to lend it under the terms of aprearranged contract to a borrower for a fee.
Collateral for the loan consists of either highquality securities or cash and collateral value
must be at least equal to the market value ofthe loaned securities. Borrowers pay anegotiated fee for loans collateralized by
securities, whereas for cash collateral lenders
pay borrowers interest at a negotiated rate
and reinvest the cash collateral to earn areturn. An intermediary such as a bank often
acts as agent lender for the owner of the
security in return for a share of the revenue
earned by the owner from lending securities.
Most often, agent lenders indemnify the owneragainst the risk of the borrower’s failure to
redeliver the loaned securities – counterparty
credit risk if a borrower defaults and market
risk if the value of the non-cash collateraldeclines. The agent lender does not indemnify
against the investment risk of re-investing
cash collateral which is borne by the owner.
Securities sold short
A transaction in which the seller sells
securities and then borrows the securities inorder to deliver them to the purchaser upon
settlement. At a later date, the seller buys
identical securities in the market to replace
the borrowed securities.
Securitization
The process by which various financial assets
are packaged into newly issued securities
backed by these assets.
Standardized Approach (SA)
Risk weights prescribed by OSFI are used to
calculate RWA for the credit risk exposures.
Credit assessments by OSFI-recognizedexternal credit rating agencies of S&P,
Moody’s, Fitch, and DBRS are used to riskweight our Sovereign and Bank exposures
based on the standards and guidelines issued
by OSFI. For our Business and Retail
exposures, we use the standard risk weights
prescribed by OSFI.

Structured entities
A structured entity is an entity in which voting
or similar rights are not the dominant factor in
deciding who controls the entity, such as when
the activities that significantly affect theentity’s returns are directed by means ofcontractual arrangements. Structured entities
often have restricted activities, narrow andwell defined objectives, insufficient equity tofinance their activities, and financing in theform of multiple contractually-linked
instruments.
Taxable equivalent basis (teb)Income from certain specified tax advantaged
sources (eligible Canadian taxable corporate
dividends) is increased to a level that would
make it comparable to income from taxable
sources. There is an offsetting adjustment in
the tax provision, thereby generating the sameafter-tax net income.
Tier 1 capital
Tier 1 capital comprises predominantly of CET1
capital, with additional Tier 1 items such aspreferred shares, limited recourse capitalnotes and non-controlling interests in
subsidiaries Tier 1 instruments.
Tier 2 capital
Tier 2 capital consists mainly of subordinateddebentures that meet certain criteria, certain
loan loss allowances and non-controllinginterests in subsidiaries’ Tier 2 instruments.
Total loss absorbing capacity (TLAC)
The aggregate of Tier 1 capital, Tier 2 capital,and external TLAC instruments which allow
conversion in whole or in part into commonshares under the Canada Deposit Insurance
Corporation Act and meet all of the eligibility
criteria under the guideline.
TLAC ratio
The risk-based TLAC ratio is defined as TLAC
divided by total risk-weighted assets.
TLAC leverage ratio
The TLAC leverage ratio is defined as TLAC
divided by the Leverage ratio exposure.
Total capital and total capital ratio
Total capital is defined as the total of Tier 1
and Tier 2 capital. The total capital ratio is
calculated by dividing total capital by riskweighted assets.
TrancheA security class created whereby the risks andreturns associated with a pool of assets arepackaged into several classes of securities
offering different risk and return profiles fromthose of the underlying asset pool. Tranches
are typically rated by ratings agencies, andreflect both the credit quality of underlying
collateral as well as the level of protection
based on the tranches’ relative subordination.
Unattributed capital
Unattributed capital represents common
equity in excess of common equity attributed
to our business segments and is reported in
the Corporate Support segment.
Value-at-Risk (VaR)
A generally accepted risk-measurement
concept that uses statistical models based on
historical information to estimate within agiven level of confidence the maximum loss inmarket value we would experience in our
financial portfolio from an adverse one-day
movement in market rates and prices.

PCL on loans ratio
PCL on loans ratio is calculated using PCL on
loans as a percentage of average net loans
and acceptances.
Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2023

131

EDTF recommendations index
We aim to present transparent, high-quality risk disclosures by providing disclosures in this 2023 Annual Report andSupplementary Financial Information package (SFI), and Pillar 3 Report, in accordance with recommendations from the FSB’s
Enhanced Disclosure Task Force (EDTF). Information within the SFI and Pillar 3 Report is not and should not be considered
incorporated by reference into this 2023 Annual Report.
The following index summarizes our disclosure by EDTF recommendation:
Location of disclosure
Type of Risk
GeneralRecommendation
1234Disclosure
Table of contents for EDTF risk disclosure
Define risk terminology and measures
Top and emerging risks
New regulatory ratios

5
6
7
8

Risk management organization
Culture and conduct risk
Risk in the context of our business activities
Stress testing

65-70
65-70
117
68-69, 81

–
–
–
–

9

Minimum Basel III capital ratios andDomestic systemically important banksurcharge
Composition of capital and reconciliation of
the accounting balance sheet to theregulatory balance sheet
Flow statement of the movements inregulatory capital
Capital strategic planning
RWA by business segments
Analysis of capital requirement, and related
measurement model information
RWA credit risk and related risk
measurements
Movement of risk-weighted assets by risk
type
Basel back-testing

109-114

–

–

*

–

19

109-114
–
71-75

–
20
*

–

*

–

20

68, 71-73

31

Risk governance,risk management
and business
model

10
11
Capital adequacy
and risk-weighted
assets (RWA)

12
13
14
15
16
17

Liquidity

Quantitative and qualitative analysis of ourliquidity reserve88-89, 94-95–

19

Encumbered and unencumbered assets bybalance sheet category, and contractual
obligations for rating downgrades
Maturity analysis of consolidated total
assets, liabilities and off-balance sheet
commitments analyzed by remaining
contractual maturity at the balance sheet
date
Sources of funding and funding strategy

90, 93

–

97-98

–

90-92

–

Relationship between the market risk
measures for trading and non-trading
portfolios and the balance sheet
Decomposition of market risk factors
Market risk validation and back-testing
Primary risk management techniques
beyond reported risk measures andparameters

85-86

–

81-86
81
81-84

–
–
–

71-81, 178-185
124-129

21-31,**

73-75, 119, 149-151––
23, 28

76

32

74-75

*

100-109
104-105, 223-224

–
–

20

21
22
23
24
25
26

30

Bank’s credit risk profile
Quantitative summary of aggregate credit
risk exposures that reconciles to thebalance sheet
Policies for identifying impaired loans
Reconciliation of the opening and closingbalances of impaired loans andimpairment allowances during the year
Quantification of gross notional exposure
for OTC derivatives or exchange-tradedderivatives
Credit risk mitigation, including collateral
held for all sources of credit risk

31
32

Other risk types
Publicly known risk events

27
28
Credit risk
29

Other
*
132

SFI page
1
–
–
–

18

Funding

Market risk

Annual Report page132
65-70, 130-131
63-65
109-114

These disclosure requirements are satisfied or partially satisfied by disclosures provided in our Pillar 3 Report for the quarter ended October 31, 2023 and for the year
ended October 31, 2022.
Royal Bank of Canada: Annual Report 2023

Index for Enhanced Disclosure Task Force recommendations

REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
Reports

Notes to Consolidated Financial Statements

134

Management’s Responsibility for Financial Reporting

145

Note 1

General information

134

Management’s Report on Internal Control overFinancial Reporting

145

Note 2

Summary of significant accounting
policies, estimates and judgments

135

Independent Auditor’s Report

161

Note 3

Fair value of financial instruments

138

Report of Independent Registered Public Accounting
Firm (PCAOB ID 271)

174

Note 4

Securities

178

Note 5Loans and allowance for credit losses

Consolidated Financial Statements

185

Note 6Significant acquisition

140

Consolidated Balance Sheets

185

Note 7

Derecognition of financial assets

141

Consolidated Statements of Income

186

Note 8Structured entities

142

Consolidated Statements of Comprehensive Income

190

Note 9Derivative financial instruments andhedging activities

143

Consolidated Statements of Changes in Equity

200

Note 10Premises and equipment

144

Consolidated Statements of Cash Flows

201

Note 11

Goodwill and other intangible assets

203

Note 12

Joint ventures and associated companies

204

Note 13

Other assets

204

Note 14

Deposits

205

Note 15

Insurance

207

Note 16Segregated funds

208

Note 17

Employee benefits – Pension and otherpost-employment benefits

213

Note 18

Other liabilities

213

Note 19

Subordinated debentures

214

Note 20

Equity216

Note 21

Share-based compensation

218

Note 22

Income taxes

220

Note 23

Earnings per share

221

Note 24

Guarantees, commitments, pledged
assets and contingencies

223

Note 25

Legal and regulatory matters

224

Note 26

Related party transactions

226

Note 27

Results by business segment

227

Note 28Nature and extent of risks arising fromfinancial instruments

228

Note 29

Capital management

229

Note 30

Offsetting financial assets and financial
liabilities

231

Note 31

Recovery and settlement of on-balance
sheet assets and liabilities

232

Note 32

Parent company information

234

Note 33

Principal subsidiaries

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

133

Management’s Responsibility for Financial Reporting
The accompanying consolidated financial statements of Royal Bank of Canada were prepared by management, which is
responsible for the integrity and fairness of the information presented, including the many amounts that must of necessity bebased on estimates and judgments. These consolidated financial statements were prepared in accordance with the Bank Act(Canada) and International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial
information appearing throughout our Management’s Discussion and Analysis is consistent with these consolidated financial
statements.
Our internal controls are designed to provide reasonable assurance that transactions are authorized, assets are
safeguarded and proper records are maintained. These controls include quality standards in hiring and training of employees,
policies and procedures manuals, a corporate code of conduct and accountability for performance within appropriate and welldefined areas of responsibility.
The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our
employees comply with securities legislation and conflict of interest rules, and by an internal audit staff, which conducts periodic
audits of all aspects of our operations.
The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee, which iscomposed entirely of independent directors. This Committee reviews our consolidated financial statements and recommends
them to the Board for approval. Other key responsibilities of the Audit Committee include reviewing our existing internal control
procedures and planned revisions to those procedures, and advising the directors on auditing matters and financial reporting
issues. Our Chief Compliance Officer and Chief Internal Auditor have full and unrestricted access to the Audit Committee.
The Office of the Superintendent of Financial Institutions Canada (OSFI) examines and inquires into our business and affairs
as deemed necessary to determine whether the provisions of the Bank Act are being complied with, and that we are in soundfinancial condition. In carrying out its mandate, OSFI strives to protect the rights and interests of our depositors and creditors.
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm appointed by our shareholders upon therecommendation of the Audit Committee and Board, has performed an independent audit of the consolidated financial
statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States) as stated in their Independent Auditor’s Report and Report of Independent
Registered Public Accounting Firm, respectively. The auditors have full and unrestricted access to the Audit Committee to discuss
their audit and related findings.
David I. McKay
President and Chief Executive Officer
Nadine Ahn
Chief Financial Officer
Toronto, November 29, 2023
Management’s Report on Internal Control over Financial Reporting
Management of Royal Bank of Canada is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief
Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. It includes those policies and procedures that:• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions related to anddispositions of our assets;• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and our receipts and expenditures are made only in accordancewith authorizations of our management and directors; and• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of ourassets that could have a material effect on our financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.
Management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer andChief Financial Officer, the effectiveness of our internal control over financial reporting as of October 31, 2023, based on thecriteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on that evaluation, management concluded that, as of October 31, 2023, internal control overfinancial reporting was effective based on the criteria established in the Internal Control – Integrated Framework (2013).
The effectiveness of our internal control over financial reporting as of October 31, 2023, has been audited byPricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, as stated in their Report of Independent
Registered Public Accounting Firm, which appears herein.
David I. McKay
President and Chief Executive Officer
Nadine Ahn
Chief Financial Officer
Toronto, November 29, 2023
134

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Independent Auditor’s Report
To the Shareholders and Board of Directors of Royal Bank of Canada

Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial positionof Royal Bank of Canada and its subsidiaries (together, the Bank) as of October 31, 2023 and 2022, and its financial performanceand its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by theInternational Accounting Standards Board (IFRS).
What we have audited
The Bank’s consolidated financial statements comprise:•the consolidated balance sheets as of October 31, 2023 and 2022;•
the consolidated statements of income for the years then ended;•
the consolidated statements of comprehensive income for the years then ended;•
the consolidated statements of changes in equity for the years then ended;•
the consolidated statements of cash flows for the years then ended; and•the notes to the consolidated financial statements, which include significant accounting policies and other explanatory
information.
Certain required disclosures have been presented elsewhere in the Management’s Discussion and Analysis, rather than in thenotes to the consolidated financial statements. These disclosures are cross-referenced from the consolidated financial
statements and are identified as audited.

Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under thosestandards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended October 31, 2023. These matters were addressed in the context of our audit of theconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion onthese matters.
Key audit matter
Allowance for Credit Losses for Financial Assets
Categorized as Stage 1 and Stage 2 (Stage 1 and Stage 2 ACL)
Refer to Note 2 – Summary of significant accounting policies,
estimates and judgments, Note 4 – Securities and Note 5 –Loans and allowance for credit losses to the consolidated
financial statements.
The Bank’s allowance for credit losses for financial assets was$5,366 million as of October 31, 2023 and represents
management’s estimate of expected credit losses on financial
assets as of the balance sheet date, of which a significant
portion relates to financial assets categorized as Stage 1 andStage 2. Performing financial assets are categorized as Stage 1
from initial recognition to the date on which the asset has
experienced a significant increase in credit risk relative to its
initial recognition. Performing financial assets transfer into
Stage 2 following a significant increase in credit risk relative tothe initial recognition. Financial assets are categorized asStage 3 when considered to be credit-impaired. As disclosed bymanagement, the measurement of expected credit losses is acomplex calculation that involves a significant number ofinterrelated inputs and assumptions such as borrower risk
ratings, forward-looking macroeconomic conditions, scenario
design and the weight assigned to each scenario. The
probability of default, loss given default and exposure atdefault inputs are modelled based on the macroeconomic
variables that are most closely correlated with credit losses.
Management’s estimation of expected credit losses in Stage 1
and Stage 2 considers five distinct future macroeconomic

How our audit addressed the key audit matter

Our approach to addressing the matter included the following
procedures, among others:• Testing the effectiveness of controls relating to theestimation of the Stage 1 and Stage 2 ACL, including
controls over:O
The probability of default, loss given default andexposure at default models.
O
The design of future macroeconomic scenarios, theforecasting of certain macroeconomic variables, andthe probability-weighting of these scenarios.
O
The assignment of borrower risk ratings.
O
The completeness and accuracy of certain data
inputs underlying the Stage 1 and Stage 2 ACL
calculation.
• Testing management’s process for estimating the Stage 1
and Stage 2 ACL, which consisted of:O
Testing the completeness and accuracy of certain
underlying data used in the estimation of the Stage 1
and Stage 2 ACL.
O
Using professionals with specialized skill andknowledge to assist in evaluating:•
The appropriateness of the probability of default,
loss given default and exposure at default
models used in the estimation of the Stage 1 andStage 2 ACL.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

135

Key audit matter
scenarios, each of which includes a forecast of relevant
macroeconomic variables, designed to capture a wide range ofpossible outcomes and which are probability-weighted
according to management’s expectation of the relative
likelihood of the range of outcomes that each scenario
represents at the reporting date. Significant management
judgment is required in making assumptions and estimations
when calculating the Stage 1 and Stage 2 ACL.
We considered this a key audit matter due to:• The significant judgment required by management whenestimating the Stage 1 and Stage 2 ACL.
• A high degree of auditor judgment and subjectivity inperforming procedures related to management’s
assumptions for:O
Designing future macroeconomic scenarios.
O
Forecasting certain macroeconomic variables.
O
Probability-weighting scenarios.
O
Assigning borrower risk ratings.
• The significant audit effort necessary to evaluate audit
evidence as the estimation of the Stage 1 and Stage 2 ACL is acomplex calculation that involves a large volume of data,interrelated inputs and assumptions, some of which aremodel-based.
• The audit effort involved the use of professionals withspecialized skill and knowledge.

Uncertain tax positions
Refer to Note 2 - Summary of significant accounting policies,
estimates and judgments and Note 22 - Income taxes to theconsolidated financial statements.
The Bank is subject to income tax laws in various jurisdictions
where it operates and the complex tax laws are potentiallysubject to different interpretations by management and therelevant taxation authorities. As disclosed by management,
significant judgment is required in the interpretation of therelevant tax laws, and in assessing the probability ofacceptance of the Bank’s tax positions to determine tax
provisions, which includes management’s best estimate ofuncertain tax positions that are under audit or appeal by therelevant taxation authorities. Management performs a review
on a quarterly basis to incorporate its best assessment basedon information available, but additional liability and income
tax expense could result based on the acceptance of the Bank’s
tax positions by the relevant tax authorities.
In some cases, the Bank has received reassessments denying
the tax deductibility of dividends from transactions including
those with Tax Indifferent Investors.
We considered this a key audit matter due to:• The significant judgment required by management, including
a high degree of estimation uncertainty, when:
O
Interpreting the relevant tax laws.
O
Assessing the probability of acceptance of the Bank’s
tax positions, which includes management’s best
estimate of uncertain tax positions that are under
audit or appeal by relevant taxation authorities.
• A high degree of auditor judgment and subjectivity inperforming procedures and evaluating the uncertain tax
positions.
• The audit effort involved the use of professionals withspecialized skill and knowledge.

How our audit addressed the key audit matter•
The reasonableness of significant inputs andassumptions used in the estimation of the Stage 1
and Stage 2 ACL related to:•
The design of future macroeconomic
scenarios.
•
Certain forecasted macroeconomic
variables.
•
The probability-weights assigned to thesescenarios.
•
The assignment of borrower risk ratings forsamples of loans.

Our approach to addressing the matter included the following
procedures, among others:• Testing the effectiveness of controls relating to theevaluation of uncertain tax positions and the impact on tax
provisions.
• Testing management’s process for (i) assessing theprobability of acceptance of the Bank’s tax positions; and(ii) estimating provisions relating to uncertain tax positions,if applicable, which reflects management’s best estimate ofuncertain tax positions that are under audit or appeal by
relevant taxation authorities. This consisted of:O
Reviewing correspondence with relevant taxation
authorities.
O
Evaluating the appropriateness of the methods used.
O
Testing the completeness and accuracy of underlying
data used in the estimate.
O
Making inquiries of the Bank’s internal and external
legal counsel.
O
Evaluating, with the assistance of professionals withspecialized skill and knowledge:•
Application of relevant tax laws.
•
The reasonableness of management’s
assessment of whether it is probable that therelevant tax authorities will accept the Bank’s tax
positions.
•
Evidence used by management.

Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion andAnalysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in theannual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form ofassurance conclusion thereon.
136

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordancewith IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability to continue as agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,or the override of internal control.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Bank to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Bank to express an opinion on the consolidated financial statements. We are responsible for the direction, supervisionand performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought tobear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of mostsignificance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Lona Mathis.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
November 29, 2023
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

137

Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Royal Bank of Canada

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Royal Bank of Canada and its subsidiaries (together, theBank) as of October 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes inequity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial
statements). We also have audited the Bank’s internal control over financial reporting as of October 31, 2023, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Bank as of October 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended inconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in
our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of October 31, 2023,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Basis for Opinions
The Bank’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on
the Bank’s consolidated financial statements and on the Bank’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatementof the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control basedon the assessed risk. Our audits also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the entity; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of theentity are being made only in accordance with authorizations of management and directors of the entity; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts ordisclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, orcomplex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses for Financial Assets Categorized as Stage 1 and Stage 2 (Stage 1 and Stage 2 ACL)As described in Notes 2, 4 and 5 to the consolidated financial statements, the Bank’s allowance for credit losses for financial
assets was $5,366 million as of October 31, 2023 and represents management’s estimate of expected credit losses on financial
assets as of the balance sheet date, of which a significant portion relates to financial assets categorized as Stage 1 and Stage 2.
Performing financial assets are categorized as Stage 1 from initial recognition to the date on which the asset has experienced asignificant increase in credit risk relative to its initial recognition. Performing financial assets transfer into Stage 2 following asignificant increase in credit risk relative to the initial recognition. Financial assets are categorized as Stage 3 when considered
138

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

to be credit-impaired. As disclosed by management, the measurement of expected credit losses is a complex calculation thatinvolves a significant number of interrelated inputs and assumptions such as borrower risk ratings, forward-looking
macroeconomic conditions, scenario design and the weight assigned to each scenario. The probability of default, loss given
default and exposure at default inputs are modelled based on the macroeconomic variables that are most closely correlated withcredit losses. Management’s estimation of expected credit losses in Stage 1 and Stage 2 considers five distinct future
macroeconomic scenarios, each of which includes a forecast of relevant macroeconomic variables, designed to capture a wide
range of possible outcomes and which are probability-weighted according to management’s expectation of the relative likelihoodof the range of outcomes that each scenario represents at the reporting date. Significant management judgment is required in
making assumptions and estimations when calculating the Stage 1 and Stage 2 ACL.
The principal considerations for our determination that performing procedures relating to the Stage 1 and Stage 2 ACL is a critical
audit matter are (i) the significant judgment required by management when estimating the Stage 1 and Stage 2 ACL; (ii) a highdegree of auditor judgment and subjectivity in performing procedures related to management’s assumptions for (a) designing
future macroeconomic scenarios, (b) forecasting certain macroeconomic variables, (c) probability-weighting scenarios, and(d) assigning borrower risk ratings; (iii) the significant audit effort necessary to evaluate audit evidence as the estimation of theStage 1 and Stage 2 ACL is a complex calculation that involves a large volume of data, interrelated inputs and assumptions, someof which are model-based; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to theestimation of the Stage 1 and Stage 2 ACL, including controls over (i) the probability of default, loss given default and exposure atdefault models; (ii) the design of future macroeconomic scenarios, the forecasting of certain macroeconomic variables, and theprobability-weighting of these scenarios; (iii) the assignment of borrower risk ratings; and (iv) the completeness and accuracy of
certain data inputs underlying the Stage 1 and Stage 2 ACL calculation. These procedures also included, among others, testing
management’s process for estimating the Stage 1 and Stage 2 ACL. This consisted of (i) testing the completeness and accuracy of
certain underlying data used in the estimation of the Stage 1 and Stage 2 ACL; and (ii) with the assistance of professionals withspecialized skill and knowledge, evaluating (a) the appropriateness of the probability of default, loss given default and exposure
at default models used in the estimation of the Stage 1 and Stage 2 ACL, and (b) the reasonableness of significant inputs andassumptions used in the estimation of the Stage 1 and Stage 2 ACL related to (1) the design of future macroeconomic scenarios,(2) certain forecasted macroeconomic variables, (3) the probability-weights assigned to these scenarios, and (4) the assignmentof borrower risk ratings for samples of loans.
Uncertain Tax Positions
As described in Note 2 to the consolidated financial statements, the Bank is subject to income tax laws in various jurisdictions
where it operates and the complex tax laws are potentially subject to different interpretations by management and the relevant
taxation authorities. As disclosed by management, significant judgment is required in the interpretation of the relevant tax laws,
and in assessing the probability of acceptance of the Bank’s tax positions to determine tax provisions, which includes
management’s best estimate of uncertain tax positions that are under audit or appeal by the relevant taxation authorities.
Management performs a review on a quarterly basis to incorporate its best assessment based on information available, but
additional liability and income tax expense could result based on the acceptance of the Bank’s tax positions by the relevant tax
authorities. In some cases, as described in Note 22 to the consolidated financial statements, the Bank has received
reassessments denying the tax deductibility of dividends from transactions including those with Tax Indifferent Investors.
The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical
audit matter are (i) the significant judgment required by management, including a high degree of estimation uncertainty, when(a) interpreting the relevant tax laws, and (b) assessing the probability of acceptance of the Bank’s tax positions, which includes
management’s best estimate of uncertain tax positions that are under audit or appeal by relevant taxation authorities; (ii) a highdegree of auditor judgment and subjectivity in performing procedures and evaluating the uncertain tax positions; and (iii) the
audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to theevaluation of uncertain tax positions and the impact on tax provisions. These procedures also included, among others, testing
management’s process for (i) assessing the probability of acceptance of the Bank’s tax positions; and (ii) estimating provisions
relating to uncertain tax positions, if applicable, which reflects management’s best estimate of uncertain tax positions that areunder audit or appeal by relevant taxation authorities. This consisted of (i) evaluating the appropriateness of the methods used;(ii) testing the completeness and accuracy of underlying data used in the estimate; (iii) reviewing correspondence with relevant
taxation authorities; (iv) making inquiries of the Bank’s internal and external legal counsel; and (v) evaluating, with theassistance of professionals with specialized skill and knowledge, the application of relevant tax laws, the reasonableness ofmanagement’s assessment of whether it is probable that the relevant tax authorities will accept the Bank’s tax positions, andevidence used by management.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
November 29, 2023
We have served as the Bank’s auditor since 2016.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

139

Consolidated Balance Sheets
As at(Millions of Canadian dollars)

AssetsCash and due from banks$

October 31

October 31

2023

2022

61,989$72,397

Interest-bearing deposits with banks

71,086108,011

Securities (Note 4)
Trading
Investment, net of applicable allowance

190,151
219,579

148,205
170,018

409,730

318,223

Assets purchased under reverse repurchase agreements and securities borrowed

340,191

317,845

Loans (Note 5)
RetailWholesale569,951
287,826

549,751
273,967

857,777(5,004)

823,718(3,753)852,773

819,965

2,760

2,638

21,695
142,450
6,749
12,594
5,907
77,06817,827
154,4397,21412,277
6,083
80,300Allowance for loan losses (Note 5)

Segregated fund net assets (Note 16)
Other
Customers’ liability under acceptances
Derivatives (Note 9)
Premises and equipment (Note 10)
Goodwill (Note 11)
Other intangibles (Note 11)
Other assets (Note 13)

266,463

278,140

Total assets$ 2,004,992$ 1,917,219

Liabilities and equity
Deposits (Note 14)
Personal
Business and government
Bank

$

$

Segregated fund net liabilities (Note 16)
Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under repurchase agreements and securities loaned
Derivatives (Note 9)
Insurance claims and policy benefit liabilities (Note 15)
Other liabilities (Note 18)

Subordinated debentures (Note 19)
Total liabilities
Equity attributable to shareholders
Preferred shares and other equity instruments (Note 20)
Common shares (Note 20)
Retained earnings
Other components of equity
Non-controlling interests

140

Royal Bank of Canada: Annual Report 2023

1,208,814

2,760

2,638

21,74533,651
335,238
142,629
11,96696,17017,87235,511
273,947
153,491
11,511
95,235641,399

587,567

11,386

10,025

1,887,232

1,809,044

7,314
19,16784,3286,852

7,318
16,98478,037
5,725

117,661

108,064
111
108,175$ 2,004,992$ 1,917,219

Frank Vettese
Director

Consolidated Financial Statements

1,231,687

117,760

The accompanying notes are an integral part of these Consolidated Financial Statements.
David I. McKay
President and Chief Executive Officer

404,932
759,870
44,012

99

Total equity
Total liabilities and equity

441,946
745,075
44,666

Consolidated Statements of Income
For the year ended(Millions of Canadian dollars, except per share amounts)

Interest and dividend income (Note 3)
Loans
Securities
Assets purchased under reverse repurchase agreements and securities borrowed
Deposits and other$

October 31

October 31

2023

2022

43,463
14,512
22,164
6,852$

26,565
7,062
5,447
1,697

86,991

40,771

36,67924,517666

10,751
7,015
288

61,862

18,054

Net interest income

25,12922,717

Non-interest income
Insurance premiums, investment and fee income (Note 15)
Trading revenue
Investment management and custodial fees
Mutual fund revenue
Securities brokerage commissions
Service charges
Underwriting and other advisory fees
Foreign exchange revenue, other than trading
Card service revenue
Credit fees
Net gains on investment securities
Income (loss) from joint ventures and associates (Note 12)
Other

5,675
2,392
8,344
4,063
1,463
2,099
2,005
1,292
1,240
1,489
193
(219)
964

3,510
926
7,610
4,289
1,481
1,976
2,058
1,038
1,203
1,512
43
110
512

Interest expense (Note 3)
Deposits and other
Other liabilities
Subordinated debentures

31,00026,268

Total revenue

56,12948,985

Provision for credit losses (Notes 4 and 5)

2,468

484

Insurance policyholder benefits, claims and acquisition expense (Note 15)

4,022

1,783

Non-interest expense
Human resources (Notes 17 and 21)
Equipment
Occupancy
Communications
Professional fees
Amortization of other intangibles (Note 11)
Other18,971
2,381
1,634
1,271
2,223
1,487
3,206

16,528
2,099
1,554
1,082
1,511
1,369
2,466

31,173

26,60918,466
3,600

20,1094,302

Income before income taxes
Income taxes (Note 22)
Net income$

14,866$15,807

Net income attributable to:Shareholders
Non-controlling interests$

14,8597$

15,794
13$

14,866$15,807

$

10.51
10.50
5.34

$

11.08
11.06
4.96

Basic earnings per share (in dollars) (Note 23)
Diluted earnings per share (in dollars) (Note 23)
Dividends per common share (in dollars)
The accompanying notes are an integral part of these Consolidated Financial Statements.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

141Consolidated Statements of Comprehensive Income
For the year ended(Millions of Canadian dollars)

Net income$

Other comprehensive income (loss), net of taxes (Note 22)
Items that will be reclassified subsequently to income:Net change in unrealized gains (losses) on debt securities and loans at fair value throughother comprehensive income
Net unrealized gains (losses) on debt securities and loans at fair value through othercomprehensive income
Provision for credit losses recognized in income
Reclassification of net losses (gains) on debt securities and loans at fair value through othercomprehensive income to income

October 31

October 31

2023

2022

14,866

$

(14)
(14)

Foreign currency translation adjustments
Unrealized foreign currency translation gains (losses)
Net foreign currency translation gains (losses) from hedging activities
Reclassification of losses (gains) on foreign currency translation to income
Reclassification of losses (gains) on net investment hedging activities to income
Net change in cash flow hedges
Net gains (losses) on derivatives designated as cash flow hedges
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income
Items that will not be reclassified subsequently to income:Remeasurement gains (losses) on employee benefit plans (1), (Note 17)
Net gains (losses) from fair value changes due to credit risk on financial liabilities designated atfair value through profit or loss
Net gains (losses) on equity securities designated at fair value through othercomprehensive income
Total other comprehensive income (loss), net of taxes

15,807(2,241)
(16)

(131)

(12)

(159)

(2,269)2,148(1,208)
(160)
146

5,091
(1,449)
(18)
17

926

3,641

216
146

1,634
194

362

1,828

(344)

821

(576)

1,747

44

50

(876)

2,618

253

5,818

Total comprehensive income (loss)$

15,119$21,625

Total comprehensive income attributable to:Shareholders
Non-controlling interests$

15,1109$21,60421$

15,119$21,625(1)

Includes $(9) million that was reclassified from other comprehensive income to retained earnings.

The accompanying notes are an integral part of these Consolidated Financial Statements.

142

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

143

$

–
–
–
–

–
–
–
–

7,323 $ 17,318 $

99
(509)
–
–
–
–
–

750
–
(150)
–
–
–
–

6,723 $ 17,728 $

(5) $

–
–
–
–

–
–
–
552
(518)
–
–

(39) $(236)(18)
14,859
(876)

(247)
(56)
15,7942,618(1)(4,917)(5)––
2(6,946)(334) $ 78,037

–
–
–
–

–
–
–
4,922
(5,183)––(73) $ 71,795

Retainedearnings

6,612 $

–
–
–
924

–
–
–
–
–
–
–

5,688 $

2,756 $–––362

$ (2,357) $–––(2,269)

–
–
–
–
–
–
–

(88) $

5,688 $

–
–
–
3,633

–
–
–
–
–
–
–

2,055 $

2,394 $

–
–
–
1,828

–
–
–
–
–
–
–

6,852 $

–
–
–
1,127

–
–
–
–
–
–
–

5,725 $

5,725 $

–
–
–
3,192

–
–
–
–
–
–
–

2,533 $

108,064 $

(247)
(56)
15,794
5,810

848(5,426)(155)
5,474(5,701)
2(6,946)

98,667 $Totalequity(257)(18)
14,866
253

2,081
–
–
4,174
(4,075)
4(7,443)

111 $

(5)
–
13
8

–
–
–
–
–
–
–

95 $

108,175(252)(56)
15,807
5,818

848(5,426)(155)
5,474(5,701)
2(6,946)

98,762Total
equity99 $ 117,760

(21)
–
7
2

–
–
–
–
–
–
–

111 $ 108,175

Non-controllinginterests

117,661 $

(236)
(18)
14,859
251

2,081
–
–
4,174
(4,075)
4(7,443)108,064 $Total other
Equitycomponents attributable toof equity
shareholders

566 $Cash flow
hedgesOther components of equity

FVOCI
Foreignsecurities
currency
and loans translation

$

–
–
–
–
–
–
–

2,394 $

Total other
EquityCash flow components attributable to Non-controlling
hedgesof equity shareholders
interests

For the year ended October 31, 2022

$ (2,516) $

–
–
–
(159)

–
–
–
–
–
–
–

$ (2,357) $FVOCIForeignsecurities
currency
and loans translation

Other components of equity

For the year ended October 31, 2023

1
–
–
–
–
4
(7,443)(231) $ 84,328

–
–
–
–

–
–
–
3,659
(3,556)––

The accompanying notes are an integral part of these Consolidated Financial Statements.

Balance at end of period

(9) $

–
–
–
–

–
–
–
515
(519)
–
–

Retainedearnings(334) $ 78,037

Treasury –preferredshares and Treasury –Common other equity
commonshares instruments
shares7,323 $ 19,398 $

–
–
–
–

–
–
–
–

Preferredshares andother equity
instruments$

Balance at beginning of period$
Changes in equity
Issues of share capital and other equity instruments
Common shares purchased for cancellation
Redemption of preferred shares and other equity instruments
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
Share-based compensation awards
Dividends on common shares
Dividends on preferred shares and distributions on other
equity instruments
Other
Net income
Total other comprehensive income (loss), net of taxes(Millions of Canadian dollars)

Balance at end of period

2,080
–
–
–
–
–
–

–
–
–
–
–
–
–

(5) $

Treasury –preferredshares and Treasury –Common other equity
commonshares instruments
shares7,323 $ 17,318 $Preferredshares andother equity
instruments

Balance at beginning of period$
Changes in equity
Issues of share capital and other equity instruments
Common shares purchased for cancellation
Redemption of preferred shares and other equity instruments
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
Share-based compensation awards
Dividends on common shares
Dividends on preferred shares and distributions on other
equity instruments
Other
Net income
Total other comprehensive income (loss), net of taxes(Millions of Canadian dollars)

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows
For the year ended(Millions of Canadian dollars)

Cash flows from operating activities
Net income
Adjustments for non-cash items and others
Provision for credit losses
Depreciation
Deferred income taxes
Amortization and impairment of other intangibles
Net changes in investments in joint ventures and associates
Losses (Gains) on investment securities
Losses (Gains) on disposition of business
Adjustments for net changes in operating assets and liabilities
Insurance claims and policy benefit liabilities
Net change in accrued interest receivable and payable
Current income taxes
Derivative assets
Derivative liabilities
Trading securities
Loans, net of securitizations
Assets purchased under reverse repurchase agreements and securities borrowed
Obligations related to assets sold under repurchase agreements and securities loaned
Obligations related to securities sold short
Deposits, net of securitizations
Brokers and dealers receivable and payable
Other

$

Net cash from (used in) operating activities

October 31

October 31

2023

2022

14,866$15,807

2,468
1,275
(995)
1,595
221
(193)
(92)

484
1,265
569
1,387
(108)
(43)
(100)

455
2,837
(986)
11,826(10,452)(41,946)(34,688)(22,346)
61,291(1,860)43,990(2,444)
1,257(1,305)333(3,336)(58,898)
62,052(8,931)(102,653)(9,942)
11,746(2,330)108,533
4,612
2,800

26,07921,942

Cash flows from investing activities
Change in interest-bearing deposits with banks
Proceeds from sales and maturities of investment securities
Purchases of investment securities
Net acquisitions of premises and equipment and other intangibles
Net proceeds from (cash transferred for) dispositions
Cash used in acquisitions, net of cash acquired

18,743
156,466(202,456)(2,730)1,712–(28,373)
99,143(122,964)(2,500)(313)(2,047)

Net cash from (used in) investing activities(28,265)(57,054)

Cash flows from financing activities
Issuance of subordinated debentures
Repayment of subordinated debentures
Issue of common shares, net of issuance costs
Common shares purchased for cancellation
Issue of preferred shares and other equity instruments, net of issuance costs
Redemption of preferred shares and other equity instruments
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
Dividends paid on shares and distributions paid on other equity instruments
Dividends/distributions paid to non-controlling interests
Change in short-term borrowings of subsidiaries
Repayment of lease liabilities

1,500
(170)
65
–
–
–
4,174
(4,075)(5,549)(21)(5,102)
(655)

1,000
(192)
51
(5,426)
749
(155)
5,474
(5,701)(6,960)
(5)
9,609
(629)

Net cash from (used in) financing activities(9,833)(2,185)

Effect of exchange rate changes on cash and due from banks

1,611(4,152)(10,408)
72,397(41,449)
113,846

Net change in cash and due from banks
Cash and due from banks at beginning of period (1)Cash and due from banks at end of period (1)Cash flows from operating activities include:
Amount of interest paid
Amount of interest received
Amount of dividends received
Amount of income taxes paid
(1)

61,989$72,397$54,69881,095
3,362
4,964

$

13,67735,8173,144
7,326

We are required to maintain balances due to regulatory requirements or contractual restrictions from central banks, other regulatory authorities, and othercounterparties. The total balances were $3 billion as at October 31, 2023 (October 31, 2022 – $2 billion; October 31, 2021 – $2 billion).

The accompanying notes are an integral part of these Consolidated Financial Statements.

144$

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Note 1

General information

Royal Bank of Canada and its subsidiaries (the Bank) provide diversified financial services including Personal & Commercial
Banking, Wealth Management, Insurance and Capital Markets products and services on a global basis. Refer to Note 27 forfurther details on our business segments.
The parent bank, Royal Bank of Canada, is a Schedule I Bank under the Bank Act (Canada) incorporated and domiciled in
Canada. Our corporate headquarters are located at Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, Canada and our head
office is located at 1 Place Ville-Marie, Montreal, Quebec, Canada. Our common shares are listed on the Toronto Stock Exchange
and New York Stock Exchange with the ticker symbol RY.
These Consolidated Financial Statements are prepared in compliance with International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board (IASB). Unless otherwise stated, monetary amounts are statedin Canadian dollars. Tabular information is stated in millions of dollars, except as noted. These Consolidated Financial
Statements also comply with Subsection 308 of the Bank Act (Canada), which states that, except as otherwise specified by the
Office of the Superintendent of Financial Institutions Canada (OSFI), our Consolidated Financial Statements are to be prepared inaccordance with IFRS. The accounting policies outlined in Note 2 have been consistently applied to all periods presented.
On November 29, 2023, the Board of Directors authorized the Consolidated Financial Statements for issue.
Note 2 Summary of significant accounting policies, estimates and judgments
The significant accounting policies used in the preparation of these Consolidated Financial Statements, including the accounting
requirements prescribed by OSFI, are summarized below. These accounting policies conform, in all material respects, to IFRS.
The same accounting policies have been applied to all periods presented.
GeneralUse of estimates and assumptions
In preparing our Consolidated Financial Statements, management is required to make subjective estimates and assumptions that
affect the reported amount of assets, liabilities, net income and related disclosures. Estimates made by management are basedon historical experience and other assumptions that are believed to be reasonable. Key sources of estimation uncertainty
include: determination of fair value of financial instruments, allowance for credit losses, insurance claims and policy benefit
liabilities, pensions and other post-employment benefits, income taxes, goodwill and other intangible assets, and provisions.
Accordingly, actual results may differ from these and other estimates thereby impacting our future Consolidated Financial
Statements. Refer to the relevant accounting policies in this Note for details on our use of estimates and assumptions.
Significant judgments
In preparation of these Consolidated Financial Statements, management is required to make significant judgments that affectthe carrying amounts of certain assets and liabilities, and the reported amounts of revenues and expenses recorded during theperiod. Significant judgments have been made in the following areas and discussed as noted in the Consolidated Financial
Statements:
Consolidation of structured entities

Note 2
Note 8

Application of the effective interest method

Note 2

Fair value of financial instruments

Note 2
Note 3

Derecognition of financial assets

Note 2
Note 7

Allowance for credit losses

Note 2
Note 4Note 5

Income taxes

Note 2
Note 22

Employee benefits

Note 2
Note 17

Provisions

Note 2
Note 24Note 25

Goodwill and other intangibles

Note 2
Note 11

Basis of consolidation
Our Consolidated Financial Statements include the assets and liabilities and results of operations of the parent company, RoyalBank of Canada, and its subsidiaries including certain structured entities, after elimination of intercompany transactions,balances, revenues and expenses.

Consolidation
Subsidiaries are those entities, including structured entities, over which we have control. We control an entity when we areexposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns
through our power over the investee. We have power over an entity when we have existing rights that give us the current ability
to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on thebasis of voting rights or, in the case of structured entities, other contractual arrangements.
We are not deemed to control an entity when we exercise power over an entity as the agent of a third party or parties. In
determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties
to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by otherparties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.
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Note 2 Summary of significant accounting policies, estimates and judgments (continued)
The determination of control is based on the current facts and circumstances and is continuously assessed. In somecircumstances, different factors and conditions may indicate that various parties control an entity depending on whether thosefactors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control
an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether weare exercising our power as a principal or an agent.
We consolidate all subsidiaries from the date we obtain control and cease consolidation when an entity is no longer
controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and expenses
reported in our Consolidated Financial Statements.
Non-controlling interests in subsidiaries that we consolidate are shown on our Consolidated Balance Sheets as a separate
component of equity which is distinct from equity attributable to our shareholders. The net income attributable tonon-controlling interests is separately disclosed in our Consolidated Statements of Income.

Investments in joint ventures and associates
Our investments in associated corporations and limited partnerships over which we have significant influence are accounted forusing the equity method. The equity method is also applied to our interests in joint ventures over which we have joint control.
Under the equity method of accounting, investments are initially recorded at cost, and the carrying amount is increased or
decreased to recognize our share of the investee’s net profit or loss, including our proportionate share of the investee’s Other
comprehensive income (OCI), subsequent to the date of acquisition.
Non-current assets held for sale and discontinued operations
Non-current assets (and disposal groups) are classified as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. This condition is satisfied when the asset is available for
immediate sale in its present condition, management is committed to the sale, and it is highly probable to occur within one year.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amountand fair value less costs to sell and if significant, are presented separately from other assets on our Consolidated Balance
Sheets.
A disposal group is classified as a discontinued operation if it meets the following conditions: (i) it is a component that canbe distinguished operationally and financially from the rest of our operations and (ii) it represents either a separate major line ofbusiness or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of
operations. Disposal groups classified as discontinued operations are presented separately from our continuing operations in
our Consolidated Statements of Income.
Financial Instruments
Classification of financial assets
Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at fair value
through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) or amortized cost based on our businessmodel for managing the financial instruments and the contractual cash flow characteristics of the instrument.
Debt instruments are measured at amortized cost if both of the following conditions are met and the asset is not designatedas FVTPL: (a) the asset is held within a business model that is Held-to-Collect (HTC) as described below, and (b) the contractual
terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amountoutstanding (SPPI).
Debt instruments are measured at FVOCI if both of the following conditions are met and the asset is not designated as
FVTPL: (a) the asset is held within a business model that is Held-to-Collect-and-Sell (HTC&S) as described below, and (b) thecontractual terms of the instrument give rise, on specified dates, to cash flows that are SPPI.
All other debt instruments are measured at FVTPL.
Equity instruments are measured at FVTPL, unless the asset is not held for trading purposes and we make an irrevocable
election to designate the asset as FVOCI. This election is made on an instrument-by-instrument basis.

Business model assessment
We determine our business models at the level that best reflects how we manage portfolios of financial assets to achieve ourbusiness objectives. Judgment is used in determining our business models, which is supported by relevant, objective evidence
including:•
How the economic activities of our businesses generate benefits, for example through trading revenue, enhancing yields
or hedging funding or other costs and how such economic activities are evaluated and reported to key management
personnel;•
The significant risks affecting the performance of our businesses, for example, market risk, credit risk, or other risks as
described in the Risk Management section of the MD&A, and the activities undertaken to manage those risks;•
Historical and future expectations of sales of the loans or securities portfolios managed as part of a business model;
and•The compensation structures for managers of our businesses, to the extent that these are directly linked to theeconomic performance of the business model.
Our business models fall into three categories, which are indicative of the key strategies used to generate returns:•
HTC: The objective of this business model is to hold loans and securities to collect contractual principal and interest
cash flows. Sales are incidental to this objective and are expected to be insignificant or infrequent.
•
HTC&S: Both collecting contractual cash flows and sales are integral to achieving the objective of the business model.
•
Other fair value business models: These business models are neither HTC nor HTC&S, and primarily represent businessmodels where assets are held-for-trading or managed on a fair value basis.

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SPPI assessment
Instruments held within a HTC or HTC&S business model are assessed to evaluate if their contractual cash flows are comprisedof solely payments of principal and interest. SPPI payments are those which would typically be expected from basic lending
arrangements. Principal amounts include par repayments from lending and financing arrangements, and interest primarily
relates to basic lending returns, including compensation for credit risk and the time value of money associated with the principal
amount outstanding over a period of time. Interest can also include other basic lending risks and costs (for example, liquidity
risk, servicing or administrative costs) associated with holding the financial asset for a period of time, and a profit margin.
Where the contractual terms introduce exposure to risk or variability of cash flows that are inconsistent with a basic lending
arrangement, the related financial asset is classified and measured at FVTPL.
Securities
Trading securities include all securities that are classified as FVTPL by nature and securities designated as FVTPL. Obligations todeliver trading securities sold but not yet purchased are recorded as liabilities and carried at fair value. Realized and unrealized
gains and losses on these securities are generally recorded in Non-interest income – Trading revenue or Non-interest income –Other. Dividends and interest income accruing on Trading securities are recorded in Interest and dividend income. Interest anddividends accrued on securities sold short are recorded in Interest expense.
Investment securities include all securities classified as FVOCI and amortized cost. All investment securities are initially
recorded at fair value and subsequently measured according to the respective classification.
Investment securities carried at amortized cost are measured using the effective interest method, and are presented net ofany allowance for credit losses, calculated in accordance with our policy for Allowance for credit losses, as described below.
Interest income, including the amortization of premiums and discounts on securities measured at amortized cost are recorded inInterest and dividend income. Impairment gains or losses recognized on amortized cost securities are recorded in Provision for
credit losses (PCL). When a debt instrument measured at amortized cost is sold, the difference between the sale proceeds andthe amortized cost of the security at the time of the sale is recorded as Net gains on investment securities in Non-interest
income.
Debt securities carried at FVOCI are measured at fair value with unrealized gains and losses arising from changes in fairvalue included in Other components of equity. Impairment gains and losses are included in PCL and correspondingly reduce theaccumulated changes in fair value included in Other components of equity. When a debt instrument measured at FVOCI is sold,the cumulative gain or loss is reclassified from Other components of equity to Net gains on investment securities in Non-interest
income.
Equity securities carried at FVOCI are measured at fair value. Unrealized gains and losses arising from changes in fair value
are recorded in Other components of equity and not subsequently reclassified to profit or loss when realized. Dividends fromFVOCI equity securities are recognized in Interest and dividend income.
We account for all of our securities using settlement date accounting and changes in fair value between the trade date andsettlement date are reflected in income for securities measured at FVTPL, and changes in the fair value of securities measured at
FVOCI between the trade and settlement dates are recorded in OCI except for changes in foreign exchange rates on debt
securities, which are recorded in Non-interest income.
Fair value option
A financial instrument with a reliably measurable fair value can be designated as FVTPL (the fair value option) on its initialrecognition even if the financial instrument was not acquired or incurred principally for the purpose of selling or repurchasing.
The fair value option can be used for financial assets if it eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities, or recognizing related gains and losses on adifferent basis (an accounting mismatch). The fair value option can be elected for financial liabilities if: (i) the election eliminates
an accounting mismatch; (ii) the financial liability is part of a portfolio that is managed on a fair value basis, in accordance with adocumented risk management or investment strategy; or (iii) there is an embedded derivative in the financial or non-financial
host contract and the derivative is not closely related to the host contract. These instruments cannot be reclassified out of the
FVTPL category while they are held or issued.
Financial assets designated as FVTPL are recorded at fair value and any unrealized gain or loss arising due to changes in fair value isincluded in Non-interest income – Trading revenue or Non-interest income – Other, depending on our business purpose for holding thefinancial asset.
Financial liabilities designated as FVTPL are recorded at fair value and fair value changes attributable to changes in our own
credit risk are recorded in OCI. Own credit risk amounts recognized in OCI will not be reclassified subsequently to net income.
The remaining fair value changes not attributable to changes in our own credit risk are recorded in Non-interest income – Trading
revenue or Non-interest income – Other, depending on our business purpose for holding the financial liability. Upon initialrecognition, if we determine that presenting the effects of own credit risk changes in OCI would create or enlarge an accounting
mismatch in net income, the full fair value change in our debt designated as FVTPL is recognized in net income. To make that
determination, we assess whether we expect that the effects of changes in the liability’s credit risk will be offset in profit or loss
by a change in the fair value of another financial instrument measured at FVTPL. Such an expectation is based on an economic
relationship between the characteristics of the liability and the characteristics of the other financial instrument. The
determination is made at initial recognition and is not reassessed. To determine the fair value adjustments on our debt
instruments designated as FVTPL, we calculate the present value of the instruments based on the contractual cash flows over theterm of the arrangement by using our effective funding rate at the beginning and end of the period.
Determination of fair value
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. We determine fair value by incorporating factors thatmarket participants would consider in setting a price, including commonly accepted valuation approaches.
The Board of Directors provides oversight on valuation of financial instruments, primarily through the Audit Committee andRisk Committee. The Audit Committee reviews the presentation and disclosure of financial instruments that are measured at fairvalue, while the Risk Committee assesses the adequacy of governance structures and control processes for the valuation ofthese instruments.
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Note 2 Summary of significant accounting policies, estimates and judgments (continued)
We have established policies, procedures and controls for valuation methodologies and techniques to ensure that fair value
is reasonably estimated. Major valuation processes and controls include, but are not limited to, profit and loss decomposition,
independent price verification (IPV) and model validation standards. These control processes are managed by either Finance orGroup Risk Management and are independent of the relevant businesses and their trading functions. Profit and loss
decomposition is a process to explain the fair value changes of certain positions and is performed daily for trading portfolios. Allfair value instruments are subject to IPV, a process whereby trading function valuations are verified against external market
prices and other relevant market data. Market data sources include traded prices, brokers and price vendors. We give priority tothose third-party pricing services and prices having the highest and most consistent accuracy. The level of accuracy isdetermined over time by comparing third-party price values to traders’ or system values, other pricing service values and, whenavailable, actual trade data. Quoted prices for identical instruments from pricing services or brokers are generally not adjusted
unless there are issues such as stale prices. If multiple quotes for identical instruments are received, fair value is based on anaverage of the prices received or the quote from the most reliable vendor, after the outlier prices that fall outside of the pricing
range are removed. Other valuation techniques are used when a price or quote is not available. Some valuation processes use
models to determine fair value. We have a systematic and consistent approach to control the use of models. Valuation models
are approved for use within our model risk management framework. The framework addresses, among other things, model
development standards, validation processes and procedures and approval authorities. Model validation ensures that a model issuitable for its intended use and sets parameters for its use. All models are revalidated regularly by qualified personnel who are
independent of the model design and development. Annually, our model risk profile is reported to the Board of Directors.
IFRS 13 Fair Value Measurement permits an exception, through an accounting policy choice, to measure the fair value of aportfolio of financial instruments on a net open risk position basis when certain criteria are met. We have elected to use thispolicy choice to determine the fair value of certain portfolios of financial instruments, primarily derivatives, based on a net
exposure to market or credit risk.
We record valuation adjustments to appropriately reflect counterparty credit quality of our derivative portfolio, differences
between the actual counterparty collateral discount curve and standard overnight index swap (OIS) discounting forcollateralized derivatives, funding valuation adjustments (FVA) for uncollateralized and under-collateralized over-the-counter(OTC) derivatives, unrealized gains or losses at inception of the transaction, bid-offer spreads, unobservable parameters andmodel limitations. These adjustments may be subjective as they require significant judgment in the input selection, such as
implied probability of default (PD) and recovery rate, and are intended to arrive at a fair value that is determined based onassumptions that market participants would use in pricing the financial instrument. The ultimate realized price for a transaction
may differ from its fair recorded value previously estimated using management judgment.
Valuation adjustments are recorded for the credit risk of our derivative portfolios in order to arrive at their fair values. Credit
valuation adjustments (CVA) take into account our counterparties’ creditworthiness, the current and potential future
mark-to-market of transactions and the effects of credit mitigants such as master netting and collateral agreements. CVA
amounts are derived from estimates of exposure at default (EAD), PD, recovery rates on a counterparty basis and market andcredit factor correlations. EAD is the value of expected derivative related assets and liabilities at the time of default, estimatedthrough modelling using underlying risk factors. PD is implied from the market prices for credit protection and the credit ratingsof the counterparty. When market data is unavailable, it is estimated by incorporating assumptions and adjustments that market
participants would use for determining fair value using these inputs. Correlation is the statistical measure of how credit andmarket factors may move in relation to one another. Correlation is estimated using historical data. CVA is calculated daily andchanges are recorded in Non-interest income – Trading revenue.
FVA is also calculated to incorporate the cost and benefit of funding in the valuation of uncollateralized and undercollateralized OTC derivatives. Future expected cash flows of these derivatives are discounted to reflect the cost and benefit offunding the derivatives by using a funding curve, implied volatilities and correlations as inputs.
Where required, a valuation adjustment is made to reflect the unrealized gain or loss at inception of a financial instrument
contract where the fair value of that financial instrument is not obtained from a quoted market price or cannot be evidenced byother observable market transactions based on a valuation technique incorporating observable market data.
A bid-offer valuation adjustment is required when a financial instrument is valued at the mid-market price, instead of the bid
or offer price for asset or liability positions, respectively. The valuation adjustment takes into account the spread from themid-market price to either the bid or offer price.
Some valuation models require parameter calibration from such factors as market observable option prices. The calibrationof parameters may be sensitive to factors such as the choice of instruments or optimization methodology. A valuation
adjustment is also estimated to mitigate the uncertainties of parameter calibration and model limitations.
In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). Determination of fair value based on this hierarchy requires the use of observable
market data whenever available. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities
that we have the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model inputs that areeither observable, or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs include one or more inputs that are unobservable and significant to the fair value of the asset or liability.
Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement
date. The availability of inputs for valuation may affect the selection of valuation techniques. The classification of a financial
instrument in the fair value hierarchy for disclosure purposes is based upon the lowest level of input that is significant to themeasurement of fair value.
Where observable prices or inputs are not available, management judgment is required to determine fair values byassessing other relevant sources of information such as historical data, proxy information from similar transactions, and throughextrapolation and interpolation techniques. For more complex or illiquid instruments, significant judgment is required in thedetermination of the model used, the selection of model inputs, and in some cases, the application of valuation adjustments tothe model value or quoted price for inactively traded financial instruments. The selection of model inputs may be subjective andthe inputs may be unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available from148

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which to determine the level at which the transaction would occur under normal business circumstances. Appropriate parameter
uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all
such instances.
Loans
Loans are debt instruments recognized initially at fair value and are subsequently measured in accordance with theClassification of financial assets policy provided above. The majority of our loans are carried at amortized cost using theeffective interest method, which represents the gross carrying amount less allowance for credit losses.
Interest on loans is recognized in Interest income using the effective interest method. The estimated future cash flows usedin this calculation include those determined by the contractual term of the asset and all fees that are considered to be integral tothe effective interest rate. Also included in this amount are transaction costs and all other premiums or discounts. Fees that
relate to activities such as originating, restructuring or renegotiating loans are deferred and recognized as Interest income overthe expected term of such loans using the effective interest method. Where there is a reasonable expectation that a loan will be
originated, commitment and standby fees are also recognized as interest income over the expected term of the resulting loans
using the effective interest method. Otherwise, such fees are recorded as other liabilities and amortized into Non-interest income
over the commitment or standby period. Future prepayment fees on mortgage loans are not included as part of the effective
interest rate at origination. If prepayment fees are received on a renewal of a mortgage loan before maturity, the fee is included
as part of the effective interest rate, and if not renewed, the prepayment fee is recognized in interest income at the prepayment
date.
For loans carried at amortized cost or FVOCI, impairment losses are recognized at each balance sheet date in accordancewith the three-stage impairment model outlined below.
Allowance for credit losses
An allowance for credit losses (ACL) is established for all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment
assessment include loans, debt securities, interest-bearing deposits with banks, customers’ liability under acceptances, accounts
and accrued interest receivable, and finance and operating lease receivables. ACL on loans measured at amortized cost ispresented in Allowance for loan losses. ACL on debt securities measured at FVOCI is presented in Other components of equity.
Other financial assets carried at amortized cost are presented net of ACL on our Consolidated Balance Sheets.
Off-balance sheet items subject to impairment assessment include financial guarantees and undrawn loan commitments.
ACL on off-balance sheet items is separately calculated and included in Other Liabilities – Provisions.
We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:•
Performing financial assets•
Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant
increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses
expected to result from defaults occurring over the 12 months following the reporting date.
•Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss
allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.
•
Impaired financial assets•
Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit
losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying
amount of the asset, net of the loss allowance, rather than on its gross carrying amount.
The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevanttime horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn
over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required under
the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the cash
flows used in measuring the lease receivable.
Increases or decreases in the required ACL attributable to model changes and new originations, sales or maturities, andchanges in risk, parameters and exposures due to changes in loss expectations or stage transfers are recorded in PCL. Write-offs
and recoveries of amounts previously written off are recorded against ACL.
The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.
Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the threestages and the application of forward-looking information. The underlying assumptions and estimates may result in changes tothe provisions from period to period that significantly affect our results of operations.

Measurement of expected credit losses
Expected credit losses are based on a range of possible outcomes and consider all available reasonable and supportable
information, including internal and external ratings, historical credit loss experience and expectations about future cash flows.
The measurement of expected credit losses is based primarily on the product of the instrument’s PD, loss given default (LGD),
and EAD discounted to the reporting date. The main difference between Stage 1 and Stage 2 expected credit losses for performing
financial assets is the respective calculation horizon. Stage 1 estimates project PD, LGD and EAD over a maximum period of
12 months while Stage 2 estimates project PD, LGD and EAD over the remaining lifetime of the instrument.
An expected credit loss estimate is produced for each individual exposure. Relevant parameters are modelled on a collective
basis using portfolio segmentation that allows for appropriate incorporation of forward-looking information. To reflect othercharacteristics that are not already considered through modelling, expert credit judgment is exercised in determining the final
expected credit losses.
For a small percentage of our portfolios which lack detailed historical information and/or loss experience, we apply
simplified measurement approaches that may differ from what is described above. These approaches have been designed tomaximize the available information that is reliable and supportable for each portfolio and may be collective in nature.
Expected credit losses are discounted to the reporting period date using the effective interest rate.

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Note 2 Summary of significant accounting policies, estimates and judgments (continued)

Expected life
For instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected remaining lifetime of the
instrument. For most instruments, the expected life is limited to the remaining contractual life.
An exemption is provided for certain instruments with the following characteristics: (a) the instrument includes both a loan
and undrawn commitment component; (b) we have the contractual ability to demand repayment and cancel the undrawn
commitment; and (c) our exposure to credit losses is not limited to the contractual notice period. For products in scope of thisexemption, the expected life may exceed the remaining contractual life and is the period over which our exposure to credit losses
is not mitigated by our normal credit risk management actions. This period varies by product and risk category and is estimatedbased on our historical experience with similar exposures and consideration of credit risk management actions taken as part ofour regular credit review cycle. Products in scope of this exemption include credit cards, overdraft balances and certain revolving
lines of credit. Judgment is required in determining the instruments in scope for this exemption and estimating the appropriate
remaining life based on our historical experience and credit risk mitigation practices.
Assessment of significant increase in credit risk
The assessment of significant increase in credit risk requires significant judgment. Movements between Stage 1 and Stage 2 arebased on whether an instrument’s credit risk as at the reporting date has increased significantly relative to the date it was
initially recognized. For the purposes of this assessment, credit risk is based on an instrument’s lifetime PD, not the losses we
expect to incur. The assessment is generally performed at the instrument level.
Our assessment of significant increases in credit risk is performed at least quarterly based on three factors. If any of thefollowing factors indicates that a significant increase in credit risk has occurred, the instrument is moved from Stage 1 to Stage 2:(1) We have established thresholds for significant increases in credit risk based on both a percentage and absolute change
in lifetime PD relative to initial recognition. For our wholesale portfolio, a decrease in the borrower’s risk rating is also
required to determine that credit risk has increased significantly.
(2) Additional qualitative reviews may be performed, as necessary, to assess the staging results, which may lead toadjustments to better reflect the positions whose credit risk has increased significantly. These reviews are completed atboth the individual borrower levels and the portfolio level and may result in an instrument, a portfolio or a portion of aportfolio moving from Stage 1 to Stage 2.
(3) Instruments which are 30 days past due are generally considered to have experienced a significant increase in credit
risk, even if our other metrics do not indicate that a significant increase in credit risk has occurred.
The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has transferred to Stage 2, if
its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will
move back to Stage 1.
For certain instruments with low credit risk as at the reporting date, it is presumed that credit risk has not increased
significantly relative to initial recognition. Credit risk is considered to be low if the instrument has a low risk of default, and theborrower has the ability to fulfill their contractual obligations both in the near term and in the longer term, including periods ofadverse changes in the economic or business environment. Certain interest-bearing deposits with banks, assets purchased underreverse repurchase agreements, insurance policy loans, and liquidity facilities extended to our multi-seller conduits have been
identified as having low credit risk.

Use of forward-looking information
The measurement of expected credit losses for each stage and the assessment of significant increase in credit risk considers
information about past events and current conditions as well as reasonable and supportable projections of future events andeconomic conditions. The estimation and application of forward-looking information requires significant judgment.
The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on themacroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in therelevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in our models for a five-year period, subsequently reverting to long-run averages.
Macroeconomic variables used in our expected credit loss models include, but are not limited to, unemployment rates, grossdomestic product growth rates, equity return indices, commodity prices, and Canadian housing prices. Depending on their usage
in the models, macroeconomic variables may be projected at a country, province/state or more granular level.
Our estimation of expected credit losses in Stage 1 and Stage 2 is a discounted probability-weighted estimate that considersa minimum of three future macroeconomic scenarios. Our base case scenario is based on macroeconomic forecasts publishedby our internal economics group. The published forecasts are developed from models based on historical macroeconomic data,
derived from public sources and financial markets. Upside and downside scenarios vary relative to our base case scenario basedon reasonably possible alternative macroeconomic conditions. Additional and more severe downside scenarios are designed tocapture a broader range of potential credit losses in certain sectors. Scenario design, including the identification of additional
downside scenarios, occurs at least on an annual basis and more frequently if conditions warrant.
Scenarios are designed to capture a wide range of possible outcomes and weighted according to our best estimate of therelative likelihood of the range of outcomes that each scenario represents. Scenario weights take into account historicalfrequency, current trends, and forward-looking conditions and are updated on a quarterly basis. All scenarios considered areapplied to all portfolios subject to expected credit losses with the same probabilities.
Our assessment of significant increases in credit risk is based on changes in probability-weighted forward-looking lifetime
PDs as at the reporting date, using the same macroeconomic scenarios as the calculation of expected credit losses.
Definition of default
The definition of default used in the measurement of expected credit losses is consistent with the definition of default used for
our internal credit risk management purposes. Our definition of default may differ across products and consider bothquantitative and qualitative factors, such as the terms of financial covenants and days past due. For retail and wholesaleborrowers, except as detailed below, default occurs when the borrower is more than 90 days past due on any material obligation
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formal possession of any collateral held. For certain credit card balances, default occurs when payments are 180 days past due.
For these balances, the use of a period in excess of 90 days past due is reasonable and supported by observable data on write-off
and recovery rates experienced on historical credit card portfolios. The definition of default used is applied consistently fromperiod to period and to all financial instruments unless it can be demonstrated that circumstances have changed such that
another definition of default is more appropriate.

Credit-impaired financial assets (Stage 3)
Financial assets are assessed for credit-impairment at each balance sheet date and more frequently when circumstances
warrant further assessment. Evidence of credit-impairment may include indications that the borrower is experiencing significant
financial difficulty, probability of bankruptcy or other financial reorganization, as well as a measurable decrease in the estimatedfuture cash flows evidenced by the adverse changes in the payments status of the borrower or economic conditions that
correlate with defaults. An asset that is in Stage 3 will move back to Stage 2 when, as at the reporting date, it is no longer
considered to be credit-impaired. The asset will transfer back to Stage 1 when its credit risk at the reporting date is no longer
considered to have increased significantly from initial recognition, which could occur during the same reporting period as thetransfer from Stage 3 to Stage 2.
When a financial asset has been identified as credit-impaired, expected credit losses are measured as the difference
between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the instrument’s
original effective interest rate. For impaired financial assets with drawn and undrawn components, expected credit losses also
reflect any credit losses related to the portion of the loan commitment that is expected to be drawn down over the remaining lifeof the instrument.
When a financial asset is credit-impaired, interest ceases to be recognized on the regular accrual basis, which accrues
income based on the gross carrying amount of the asset. Rather, interest income is calculated by applying the original effective
interest rate to the amortized cost of the asset, which is the gross carrying amount less the related ACL.
ACL for credit-impaired loans in Stage 3 are established at the borrower level, where losses related to impaired loans are
identified on individually significant loans, or collectively assessed and determined through the use of portfolio-based rates,
without reference to particular loans.
Individually assessed loans (Stage 3)
When individually significant loans are identified as impaired, we reduce the carrying value of the loans to their estimatedrealizable value by recording an individually assessed ACL to cover identified credit losses. The individually assessed ACL
reflects the expected amount of principal and interest calculated under the terms of the original loan agreement that will not berecovered, and the impact of time delays in collecting principal and/or interest (time value of money). The estimated realizablevalue for each individually significant loan is the present value of expected future cash flows discounted using the original
effective interest rate for each loan. When the amounts and timing of future cash flows cannot be estimated with reasonable
reliability, the estimated realizable amount may be determined using observable market prices for comparable loans, the fairvalue of collateral underlying the loans, and other reasonable and supported methods based on management judgment.
Individually-assessed allowances are established in consideration of a range of possible outcomes, which may include
macroeconomic or non-macroeconomic scenarios, to the extent relevant to the circumstances of the specific borrower being
assessed. Assumptions used in estimating expected future cash flows reflect current and expected future economic conditions
and are generally consistent with those used in Stage 1 and Stage 2 measurement.
Significant judgment is required in assessing evidence of credit-impairment and estimation of the amount and timing of
future cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a direct
impact on PCL and may result in a change in the ACL.
Collectively assessed loans (Stage 3)
Loans that are collectively assessed are grouped on the basis of similar risk characteristics, taking into account loan type,industry, geographic location, collateral type, past due status and other relevant factors.
The collectively-assessed ACL reflects: (i) the expected amount of principal and interest calculated under the terms of theoriginal loan agreement that will not be recovered, and (ii) the impact of time delays in collecting principal and/or interest (timevalue of money).
The expected principal and interest collection is estimated on a portfolio basis and references historical loss experience ofcomparable portfolios with similar credit risk characteristics, adjusted for the current environment and expected future
conditions. A portfolio specific coverage ratio is applied against the impaired loan balance in determining the collectivelyassessed ACL. The time value of money component is calculated by using the discount factors applied to groups of loans sharing
common characteristics. The discount factors represent the expected recovery pattern of the comparable group of loans, andreflect the historical experience of these groups adjusted for current and expected future economic conditions and/or industry
factors. Significant judgment is required in assessing evidence of impairment and estimation of the amount and timing of future
cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a direct
impact on PCL and may result in a change in the ACL.
Write-off of loans
Loans and the related ACL are written off, either partially or in full, when there is no realistic prospect of recovery. Where loans
are secured, they are generally written off after receipt of any proceeds from the realization of collateral. In circumstances where
the net realizable value of any collateral has been determined and there is no reasonable expectation of further recovery, write
off may be earlier. For credit cards, the balances and related ACL are generally written off when payment is 180 days past due.
Personal loans are generally written off at 150 days past due.
Modifications
The original terms of a financial asset may be renegotiated or otherwise modified, resulting in changes to the contractual termsof the financial asset that affect the contractual cash flows. The treatment of such modifications is primarily based on theprocess undertaken to execute the renegotiation and the nature and extent of the expected changes. In the normal course ofbusiness, modifications which are performed for credit reasons, primarily related to troubled debt restructurings, are generally
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Note 2 Summary of significant accounting policies, estimates and judgments (continued)
treated as modifications of the original financial asset. Modifications which are performed for other than credit reasons are
generally considered to be an expiry of the original cash flows; accordingly, such renegotiations are treated as a derecognition of
the original financial asset and recognition of a new financial asset.
If a modification of terms does not result in derecognition of the financial asset, the carrying amount of the financial asset isrecalculated as the present value of the renegotiated or modified contractual cash flows, discounted at the original effective
interest rate and a gain or loss is recognized. The financial asset continues to be subject to the same assessments for significant
increase in credit risk relative to initial recognition and credit-impairment, as described above. A modified financial asset willtransfer out of Stage 3 if the conditions that led to it being identified as credit-impaired are no longer present and relate
objectively to an event occurring after the original credit-impairment was recognized. A modified financial asset will transfer outof Stage 2 when it no longer satisfies the relative thresholds set to identify significant increases in credit risk, which are based onchanges in its lifetime PD, days past due and other qualitative considerations. The financial asset continues to be monitored forsignificant increases in credit risk and credit-impairment.
If a modification of terms results in derecognition of the original financial asset and recognition of the new financial asset,
the new financial asset will generally be recorded in Stage 1, unless it is determined to be credit-impaired at the time of therenegotiation. For the purposes of assessing for significant increases in credit risk, the date of initial recognition for the newfinancial asset is the date of the modification.
Derivatives
When derivatives are embedded in other financial instruments or host contracts, such combinations are known as hybrid
instruments. Some of the cash flows of a hybrid instrument vary in a way similar to a stand-alone derivative. If the host contract
is a financial asset within the scope of IFRS 9 Financial Instruments (IFRS 9), the classification and measurement criteria areapplied to the entire hybrid instrument as described in the Classification of financial assets section of Note 2. If the host contract
is a financial liability or an asset that is not within the scope of IFRS 9, embedded derivatives are separately recognized if theeconomic characteristics and risks of the embedded derivative are not clearly and closely related to the host contract, unless anelection has been made to elect the fair value option, as described above. The host contract is accounted for in accordance withthe relevant standards.
Derivatives are primarily used in trading activities. Derivatives are also used to manage our exposure to interest, currency,
credit and other market risks. The most frequently used derivative products are interest rate and foreign exchange swaps,
options, futures and forward rate agreements, equity swaps and credit derivatives. All derivative instruments are recorded on our
Consolidated Balance Sheets at fair value.
When derivatives are used in trading activities, the realized and unrealized gains and losses on these derivatives arerecognized in Trading revenue in Non-interest income. Derivatives with positive fair values are reported as Derivative assets andderivatives with negative fair values are reported as Derivative liabilities. In accordance with our policy for offsetting financial
assets and financial liabilities, the net fair value of certain derivative assets and liabilities are reported as an asset or liability, as
appropriate. Valuation adjustments are included in the fair value of Derivative assets and Derivative liabilities. Premiums paid
and premiums received are shown in Derivative assets and Derivative liabilities, respectively.
When derivatives are used to manage our own exposures, we determine for each derivative whether hedge accounting canbe applied, as discussed in the Hedge accounting section below.
Derecognition of financial assets
Financial assets are derecognized from our Consolidated Balance Sheets when our contractual rights to the cash flows from theassets have expired, when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those cash
flows to a third party subject to certain pass-through requirements or when we transfer our contractual rights to receive the cash
flows and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially all of therisks and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated Balance Sheets
and are accounted for as secured financing transactions. When we neither retain nor transfer substantially all risks and rewardsof ownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain control over thetransferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement.
Management judgment is applied in determining whether the contractual rights to the cash flows from the transferred assets
have expired or whether we retain the rights to receive cash flows on the assets but assume an obligation to pay for those cash
flows. We derecognize transferred financial assets if we transfer substantially all the risks and rewards of the ownership in theassets. When assessing whether we have transferred substantially all of the risk and rewards of the transferred assets,management considers the Bank’s exposure before and after the transfer with the variability in the amount and timing of the net
cash flows of the transferred assets. In transfers in which we retain the servicing rights, management has applied judgment inassessing the benefits of servicing against market expectations. When the benefits of servicing are greater than fair value, aservicing asset is recognized in Other assets in our Consolidated Balance Sheets. When the benefits of servicing are less than fairvalue, a servicing liability is recognized in Other liabilities in our Consolidated Balance Sheets.
Derecognition of financial liabilities
We derecognize a financial liability from our Consolidated Balance Sheets when our obligation specified in the contract expires,or is discharged or cancelled. We recognize the difference between the carrying amount of a financial liability transferred and theconsideration paid in our Consolidated Statements of Income.
Interest
Interest is recognized in Interest income and Interest expense in the Consolidated Statements of Income for all interest-bearing
financial instruments. The effective interest rate is the rate that discounts estimated future cash flows over the expected life of
the financial asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in determining
the effective interest rate due to uncertainty in the timing and amounts of future cash flows.

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Dividend income
Dividend income is recognized when the right to receive payment is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders have approved the dividend for unlisted equity securities.
Transaction costs
Transaction costs are expensed as incurred for financial instruments classified or designated as FVTPL. For other financial
instruments, transaction costs are capitalized on initial recognition. For financial assets and financial liabilities measured atamortized cost and debt financial assets measured at FVOCI, capitalized transaction costs are amortized through net income
over the estimated life of the instrument using the effective interest method.
Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset on the Consolidated Balance Sheets when there exists both a legally
enforceable right to offset the recognized amounts and an intention to settle on a net basis, or realize the asset and settle theliability simultaneously.
Assets purchased under reverse repurchase agreements and sold under repurchase agreements
We purchase securities under agreements to resell (reverse repurchase agreements) and take possession of these securities. We
monitor the market value of the securities purchased and additional collateral is obtained when appropriate. We have the rightto liquidate the collateral held in the event of counterparty default. Reverse repurchase agreements are treated as collateralized
lending transactions. We also sell securities under agreements to repurchase (repurchase agreements), which are treated ascollateralized borrowing transactions. The securities received under reverse repurchase agreements and securities delivered
under repurchase agreements are not recognized on, or derecognized from, our Consolidated Balance Sheets, respectively,
unless the risks and rewards of ownership are obtained or relinquished.
Reverse repurchase agreements and repurchase agreements are carried on our Consolidated Balance Sheets at theamounts at which the securities were initially acquired or sold, except when they are classified or designated as FVTPL and arerecorded at fair value. Interest earned on reverse repurchase agreements is included in Interest income, and interest incurred on
repurchase agreements is included in Interest expense in our Consolidated Statements of Income. Changes in fair value forreverse repurchase agreements and repurchase agreements classified or designated as FVTPL are included in Trading revenue or
Other in Non-interest income.
Hedge accounting
We have elected to continue to apply the hedge accounting principles under IAS 39 instead of those under IFRS 9.
We use derivatives and non-derivatives in our hedging strategies to manage our exposure to interest rate, currency, credit
and other market risks. Where hedge accounting can be applied, a hedge relationship is designated and documented at inception
to detail the particular risk management objective and strategy for undertaking the hedge transaction. The documentation
identifies the specific asset, liability or anticipated cash flows being hedged, the risk that is being hedged, the type of hedging
instrument used and how effectiveness will be assessed. We assess, both at the inception of the hedge and on an ongoing basis,
whether the hedging instruments are ‘highly effective’ in offsetting changes in the fair value or cash flows of the hedged items. A
hedge is regarded as highly effective only if the following criteria are met: (i) at inception of the hedge and throughout its life, thehedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk,and (ii) actual results of the hedge are within a pre-determined range. We perform effectiveness testing to demonstrate that therelationship has been and is expected to be effective over the remaining term of the hedge. In the case of hedging a forecast
transaction, the transaction must have a high probability of occurring and must present an exposure to variations in cash flowsthat could ultimately affect the reported net profit or loss. Hedge accounting is discontinued when it is determined that thehedging instrument is no longer effective as a hedge, the hedging instrument or hedged item is terminated or sold, or the forecast
transaction is no longer deemed highly probable. Refer to Note 9 for the fair value of derivatives and non-derivative instruments
categorized by their hedging relationships, as well as derivatives that are not designated in hedging relationships.
Until the hedging relationships impacted by the Interest rate benchmark reform (the Reform) fully transition to alternative
benchmark rates (ABRs), our prospective effectiveness testing is based on existing hedged cash flows or hedged risks and any
ineffectiveness arising from retrospective testing does not result in a discontinuation of the hedge. Additionally, effectivenesstesting is applied separately to hedged items referencing ABRs and hedged items referencing interbank offered rates (IBORs),
which include USD London Interbank Offered Rate (USD LIBOR) and Canadian Dollar Offered Rate (CDOR), in accordance with
the Phase 2 amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7
Financial Instruments: Disclosures, IFRS 4 Insurance contracts, and IFRS 16 Leases (the Amendments). Subsequently, when these
relationships fully transition to ABRs, and provided qualifying criteria are met, we will amend the related hedge documentation
for the ABR risk, including consequential changes to the description of the hedging instrument(s), the hedged item(s), and themethod for assessing hedge effectiveness, without discontinuing the existing hedging relationships.

Fair value hedges
In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to thehedged risk and recognized in Non-interest income. Changes in fair value of the hedged item, to the extent that the hedging
relationship is effective, are offset by changes in the fair value of the hedging derivative, which are also recognized in
Non-interest income. When hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted and thecumulative fair value adjustments to the carrying value of the hedged items are amortized to Net income over the expected
remaining life of the hedged items.
We predominantly use interest rate swaps to hedge our exposure to changes in a fixed interest rate instrument’s fair valuecaused by changes in interest rates. Until the hedging relationships impacted by the Reform fully transition to ABRs, we apply
hedge accounting to IBOR rates which may not be contractually specified when that rate is separately identifiable and reliably
measurable at inception of the hedge relationship.

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Note 2 Summary of significant accounting policies, estimates and judgments (continued)

Cash flow hedges
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative, net of taxes, isrecognized in OCI and reclassified to profit or loss as the associated hedged forecast transaction occurs, while the ineffective
portion is recognized in Non-interest income. When hedge accounting is discontinued, the cumulative amounts previously
recognized in OCI are reclassified to Net interest income during the periods when the variability in the cash flows of the hedged
item affects Net interest income. Unrealized gains and losses on derivatives are reclassified immediately to Net income when thehedged item is sold or terminated early, or when the forecast transaction is no longer expected to occur.
We predominantly use interest rate swaps to hedge the variability in cash flows related to a variable-rate asset or liability.
Until the hedging relationships impacted by the Reform fully transition to ABRs, we treat the highly probable hedged IBORs based
cash flows of groups of similar assets or liabilities with similar risk characteristics as unchanged as a result of the Reform. In
addition, associated cash flow hedge reserves are not recycled into net income solely due to changes related to the transition
from IBORs to ABRs. Subsequently, when some items in the group transition to ABRs before other items, the individual hedged
items are allocated to subgroups based on the benchmark interest rate being hedged. We test hedge effectiveness based on thedefined subgroups, in accordance with the Amendments, if eligibility requirements are met. If a subgroup fails the eligibility
requirements, we would discontinue hedge accounting prospectively for the hedging relationship in its entirety.
Net investment hedges
In hedging our foreign currency exposure to a net investment in a foreign operation, the effective portion of foreign exchange
gains and losses on the hedging instruments, net of applicable taxes, is recognized in OCI and the ineffective portion isrecognized in Non-interest income. The amounts, or a portion thereof, previously recognized in Other components of equity arerecognized in Net income on the disposal, or partial disposal, of the foreign operation.
We use foreign exchange contracts and foreign currency-denominated liabilities to manage our foreign currency exposures
to net investments in foreign operations having a functional currency other than the Canadian dollar.
Guarantees
Financial guarantee contracts are contracts that contingently require us to make specified payments (in cash, other assets, ourown shares or provision of services) to reimburse the holder for a loss it incurs because a specified debtor fails to make payment
when due in accordance with the original or modified terms of a debt instrument. Liabilities are recognized on our Consolidated
Balance Sheets at the inception of a guarantee for the fair value of the obligation undertaken in issuing the guarantee. Financial
guarantees are subsequently remeasured at the higher of (i) the amount of expected credit losses and (ii) the amount initiallyrecognized less, when appropriate, the cumulative amount of income recognized.
If the financial guarantee contract meets the definition of a derivative, it is measured at fair value at each balance sheet
date and reported under Derivatives on our Consolidated Balance Sheets.
Insurance and segregated funds
Premiums from long-duration contracts, primarily life, health and annuity insurance (life insurance), are recognized when due in
Non-interest income – Insurance premiums, investment and fee income. Premiums from short-duration contracts, primarily
property and casualty, and fees for administrative services are recognized in Insurance premiums, investment and fee income
over the related contract period. Unearned premiums of the short-duration contracts, representing the unexpired portion ofpremiums, are reported in Other liabilities. Investments made by our insurance operations are classified as FVOCI instruments
and amortized cost instruments, except for investments supporting the policy benefit liabilities on life insurance contracts and a
portion of property and casualty contracts. These are designated as FVTPL with changes in fair value reported in Insurance
premiums, investment and fee income.
Insurance claims and policy benefit liabilities represent current claims and estimates for future insurance policy benefits.
Liabilities for life insurance contracts are determined using the Canadian Asset Liability Method (CALM), which incorporates
assumptions for mortality, morbidity, policy lapses and surrenders, investment yields, policy dividends, operating and policy
maintenance expenses and provisions for adverse deviation. These assumptions are reviewed at least annually and updated in
response to actual experience and market conditions. Liabilities for property and casualty insurance represent estimatedprovisions for reported and unreported claims. Liabilities for life and property and casualty insurance are included in Insurance
claims and policy benefit liabilities. Changes in Insurance claims and policy benefit liabilities are included in the Insurance
policyholder benefits, claims and acquisition expense in our Consolidated Statements of Income in the period in which theestimates change.
Premiums ceded for reinsurance and reinsurance recoveries on policyholder benefits and claims incurred are reported inincome and expense as appropriate. Reinsurance recoverables, which relate to paid benefits and unpaid claims, are included in
Other assets.
Acquisition costs for new insurance contracts consist of commissions, premium taxes, certain underwriting costs and othercosts that vary with the acquisition of new contracts. Deferred acquisition costs for life insurance products are implicitly
recognized in Insurance claims and policy benefit liabilities by CALM. For property and casualty insurance, these costs areclassified as Other assets and amortized over the policy term.
Segregated funds are lines of business in which we issue an insurance contract where the benefit amount is directly linked tothe market value of the investments held in the underlying fund. The contractual arrangement is such that the underlying
segregated fund assets are registered in our name but the segregated fund policyholders bear the risks and rewards of the funds’
investment performance. Liabilities for these contracts are calculated based on contractual obligations using actuarial
assumptions and are at least equivalent to the surrender or transfer value calculated by reference to the value of the relevant
underlying funds or indices. Segregated funds’ assets and liabilities are separately presented on our Consolidated Balance
Sheets. As the segregated fund policyholders bear the risks and rewards of the funds’ performance, investment income earned by
the segregated funds and expenses incurred by the segregated funds are offset and are not separately presented in our
Consolidated Statements of Income. Fee income we earn from segregated funds includes management fees, mortality, policy
administration and surrender charges, and these fees are recorded in Non-interest income – Insurance premiums, investment
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and fee income. We provide minimum death benefit and maturity value guarantees on segregated funds. The liability associatedwith these minimum guarantees is recorded in Insurance claims and policy benefit liabilities.
Liability adequacy tests are performed for all insurance contract portfolios at each balance sheet date to ensure theadequacy of insurance contract liabilities. Current best estimates of future contractual cash flows, claims handling andadministration costs, and investment returns from the assets backing the liabilities are taken into account in the tests. When thetest results indicate that there is a deficiency in liabilities, the deficiency is charged immediately to our Consolidated Statementsof Income by writing down the deferred acquisition costs in Other assets and/or increasing Insurance claims and policy benefit
liabilities.
Employee benefits – Pensions and other post-employment benefits
Our defined benefit pension expense, which is included in Non-interest expense – Human resources, consists of the cost of
employee pension benefits for the current year’s service, net interest on the net defined benefit liability (asset), past service costand gains or losses on settlement. Remeasurements of the net defined benefit obligation, which comprise actuarial gains andlosses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized
immediately in OCI in the period in which they occur. Actuarial gains and losses comprise experience adjustments (the effects ofdifferences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in
actuarial assumptions. Amounts recognized in OCI will not be reclassified subsequently to net income. Past service cost is thechange in the present value of the defined benefit obligation resulting from a plan amendment or curtailment and is charged
immediately to income.
For each defined benefit pension plan, we recognize the present value of our defined benefit obligations less the fair value ofthe plan assets as a defined benefit liability reported in Other liabilities – Employee benefit liabilities on our Consolidated
Balance Sheets. For plans where there is a net defined benefit asset, the amount is reported as an asset in Other assets –Employee benefit assets on our Consolidated Balance sheets.
The calculation of defined benefit expenses and obligations requires significant judgment as the recognition is dependent on
discount rates and various actuarial assumptions such as healthcare cost trend rates, projected salary increases, retirement age
and mortality and termination rates. Due to the long-term nature of these plans, such estimates and assumptions are subject toinherent risks and uncertainties. For our pension and other post-employment benefit plans, the discount rate is determined byreference to market yields on high quality corporate bonds. Since the discount rate is based on currently available yields, andinvolves management’s assessment of market liquidity, it is only a proxy for future yields. Actuarial assumptions, set inaccordance with current practices in the respective countries of our plans, may differ from actual experience as country specificstatistics are only estimates of future employee behaviour. These assumptions are determined by management and are reviewed
by actuaries at least annually. Changes to any of the above assumptions may affect the amounts of benefits obligations,
expenses and remeasurements that we recognize.
Our contributions to defined contribution pension plans are expensed when employees have rendered services in exchange
for such contributions. Defined contribution pension expense is included in Non-interest expense – Human resources.
Share-based compensation
We offer share-based compensation plans to certain key employees and to our non-employee directors.
To account for stock options granted to employees, compensation expense is recognized over the applicable vesting periodwith a corresponding increase in equity. Fair value is determined by using option valuation models, which take into account theexercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over thelife of the option and other relevant factors. When the options are exercised, the exercise price proceeds together with theamount initially recorded in equity are credited to common shares. Our other share-based compensation plans include
performance deferred share plans and deferred share unit plans for key employees (the Plans). The obligations for the Plans are
accrued over their vesting periods. The Plans are settled in cash.
For cash-settled awards, our accrued obligations are adjusted to their fair value at each balance sheet date. For sharesettled awards, our expected obligations recognized in equity are based on the fair value of our common shares at the date of
grant. Changes in our obligations, net of related hedges, are recorded as Non-interest expense – Human resources in our
Consolidated Statements of Income with a corresponding increase in Other liabilities for cash-settled awards and in Retained
earnings for share-settled awards. Compensation expense is recognized in the year the awards are earned by plan participants
based on the vesting schedule of the relevant plans, net of estimated forfeitures.
The compensation cost attributable to options and awards granted to employees who are eligible to retire or will become
eligible to retire during the vesting period, is recognized immediately if the employee is eligible to retire on the grant date or overthe period between the grant date and the date the employee becomes eligible to retire.
Our contributions to the employee savings and share ownership plans are expensed as incurred.
Income taxes
Income tax comprises current tax and deferred tax and is recognized in our Consolidated Statements of Income except to theextent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction in
the period in which profits arise, calculated using tax rates enacted or substantively enacted by the balance sheet date. Deferred
tax is recognized on temporary differences between the carrying amounts of assets and liabilities for accounting and tax
purposes. A deferred income tax asset or liability is determined for each temporary difference, except for earnings related to our
subsidiaries, branches, associates and interests in joint ventures where the temporary differences will not reverse in theforeseeable future and we have the ability to control the timing of reversal. Deferred tax assets and liabilities are determinedbased on the tax rates that are expected to be in effect in the period that the asset is realized or the liability is settled, based on
tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Current tax assets andliabilities are offset when they are levied by the same taxation authority on either the same taxable entity or different taxable
entities within the same tax reporting group (which intends to settle on a net basis), and when there is a legal right to offset.
Deferred tax assets and liabilities are offset when the same conditions are satisfied. Our Consolidated Statements of Income
include items that are non-taxable or non-deductible for income tax purposes and, accordingly, this causes the income tax
provision to be different from what it would be if based on statutory rates.
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Note 2 Summary of significant accounting policies, estimates and judgments (continued)
Deferred income taxes accumulated as a result of temporary differences and tax loss carryforwards are included in Other
assets and Other liabilities. On a quarterly basis, we review our deferred income tax assets to determine whether it is probablethat the benefits associated with these assets will be realized; this review involves evaluating both positive and negative evidence.
We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially subject
to different interpretations by us and the relevant taxation authorities. Significant judgment is required in the interpretation of therelevant tax laws and in assessing the probability of acceptance of our tax positions to determine our tax provision, which includes
our best estimate of uncertain tax positions that are under audit or appeal by the relevant tax authorities. We perform a review on
a quarterly basis to incorporate our best assessment based on information available, but additional liability and income tax
expense could result based on the acceptance of our tax positions by the relevant tax authorities.
The determination of our deferred tax asset or liability also requires significant management judgment as the recognition isdependent on our projection of future taxable profits and tax rates that are expected to be in effect in the period the asset isrealized or the liability is settled. Any changes in our projection will result in changes in deferred tax assets or liabilities on our
Consolidated Balance Sheets, and also deferred tax expense on our Consolidated Statements of Income.
The IASB issued amendments to IAS 12 Income Taxes (IAS 12) in May 2023 to address the Pillar Two Model Rules forInternational Tax Reform, including a global 15% minimum tax. The amendments introduce, with immediate effect, a temporary
recognition exception in relation to accounting and disclosure for deferred taxes arising from the implementation of theinternational tax reform.
Business combinations, goodwill and other intangibles
All business combinations are accounted for using the acquisition method. Non-controlling interests, if any, are recognized attheir proportionate share of the fair value of identifiable assets and liabilities, unless otherwise indicated. Identifiable intangible
assets are recognized separately from goodwill and included in Other intangibles. Goodwill represents the excess of the pricepaid for the business acquired over the fair value of the net identifiable assets acquired on the date of acquisition.
Goodwill
Goodwill is allocated to cash-generating units or groups of cash-generating units for the purpose of impairment testing, which isundertaken at the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is
performed annually as at August 1, or more frequently if there are objective indicators of impairment, by comparing therecoverable amount of a cash-generating unit (CGU) with its carrying amount. The recoverable amount of a CGU is the higher ofits value in use (VIU) and its fair value less costs of disposal (FVLCD). VIU is the present value of the expected future cash flows
from a CGU. FVLCD is the amount obtainable from the sale of a CGU in an orderly transaction between market participants, lessdisposal costs. The fair value of a CGU is estimated using valuation techniques such as a discounted cash flow method, adjusted
to reflect the considerations of a prospective third-party buyer. External evidence such as binding sale agreements or recent
transactions for similar businesses within the same industry is considered to the extent that it is available.
Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGUs, inparticular future cash flows, discount rates and terminal growth rates, due to the uncertainty in the timing and amount of cash
flows and the forward-looking nature of these inputs. Future cash flows are based on financial plans agreed by management which
are estimated based on forecast results, business initiatives, planned capital investments and returns to shareholders. Discountrates are based on the bank-wide cost of capital, adjusted for CGU-specific risks and currency exposure as reflected by differencesin expected inflation. Bank-wide cost of capital is based on the Capital Asset Pricing Model, the Dividend Growth Model and peer
analysis. CGU-specific risks include country risk, business/operational risk, geographic risk (including political risk, devaluation
risk and government regulation), currency risk and price risk (including product pricing risk and inflation). Terminal growth rates
are based on the long-term steady state growth expectations in the countries within which the CGU operates. If the future cash
flows and other assumptions in future periods deviate significantly from the current amounts used in our impairment testing, thevalue of our goodwill could become impaired, with any such impairment loss recognized in Non-interest expense.
The carrying amount of a CGU includes the carrying amount of assets, liabilities and goodwill allocated to the CGU. If therecoverable amount is less than the carrying value, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then to the other non-financial assets of the CGU proportionately based on the carrying
amount of each asset. Any impairment loss is charged to income in the period in which the impairment is identified. Goodwill isstated at cost less accumulated impairment losses. Subsequent reversals of goodwill impairment are prohibited.
Upon disposal of a portion of a CGU, the carrying amount of goodwill related to the portion of the CGU sold is included in thedetermination of gains or losses on disposal. The carrying amount is determined based on the relative fair value of the disposed
portion to the total CGU.
Other intangibles
Intangible assets represent identifiable non-monetary assets and are acquired either separately or through a businesscombination, or generated internally. Intangible assets acquired through a business combination are recognized separately fromgoodwill when they are separable or arise from contractual or other legal rights, and their fair value can be measured reliably.
The cost of a separately acquired intangible asset includes its purchase price and directly attributable costs of preparing theasset for its intended use. In respect of internally generated intangible assets, cost includes all directly attributable costs
necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Researchand development costs that are not eligible for capitalization are expensed. After initial recognition, an intangible asset is carriedat its cost less any accumulated amortization and accumulated impairment losses, if any. Intangible assets with a finite-life areamortized on a straight-line basis over their estimated useful lives as follows: computer software – 3 to 10 years; and customer
list and relationships – 10 to 20 years. We do not have any intangible assets with indefinite lives.
Intangible assets are assessed for indicators of impairment at each reporting period. If there is an indication that an
intangible asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to
its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate therecoverable amount of the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU) is less than its
carrying amount, the carrying amount of the intangible asset is written down to its recoverable amount as an impairment loss.
156

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

An impairment loss recognized previously is reversed if there is a change in the estimates used to determine the recoverable
amount of the asset (or CGU) since the last impairment loss was recognized. If an impairment loss is subsequently reversed, thecarrying amount of the asset (or CGU) is revised to the lower of its recoverable amount and the carrying amount that would havebeen determined (net of amortization) had there been no prior impairment.
Due to the subjective nature of these estimates, significant judgment is required in determining the useful lives andrecoverable amounts of our intangible assets, and assessing whether certain events or circumstances constitute objective
evidence of impairment. Estimates of the recoverable amounts of our intangible assets rely on certain key inputs, including
future cash flows and discount rates. Future cash flows are based on sales projections and allocated costs which are estimatedbased on forecast results and business initiatives. Discount rates are based on the bank-wide cost of capital, adjusted for assetspecific risks. Changes in these assumptions may impact the amount of impairment loss recognized in Non-interest expense.
Other
Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates prevailing at thebalance sheet date. Foreign exchange gains and losses resulting from the translation and settlement of these items arerecognized in Non-interest income in the Consolidated Statements of Income.
Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars at historicalrates.
Assets and liabilities of our foreign operations with functional currencies other than Canadian dollars are translated into
Canadian dollars at rates prevailing at the balance sheet date, and income and expenses of these foreign operations aretranslated at average rates of exchange for the reporting period.
Unrealized gains or losses arising as a result of the translation of our foreign operations along with the effective portion ofrelated hedges are reported in Other components of equity on an after-tax basis. Upon disposal or partial disposal of a foreign
operation, an appropriate portion of the accumulated net translation gains or losses is included in Non-interest income.
Premises and equipment
Premises and equipment includes land, buildings, leasehold improvements, computer equipment, furniture, fixtures and otherequipment, and are stated at cost less accumulated depreciation, except for land which is not depreciated, and accumulated
impairment losses. Cost comprises the purchase price, any costs directly attributable to bringing the asset to the location andcondition necessary for its intended use, and the initial estimate of any disposal costs. Depreciation is recorded principally on astraight–line basis over the estimated useful lives of the assets, which are 25 to 50 years for buildings, 3 to 10 years for computerequipment, and 5 to 10 years for furniture, fixtures and other equipment. The amortization period for leasehold improvements is
the lesser of the useful life of the leasehold improvements or the lease term plus the first renewal period, if reasonably assuredof renewal. Depreciation methods, useful lives, and residual values are reassessed at each reporting period and adjusted as
appropriate. Gains and losses on disposal are recorded in Non–interest income.
Premises and equipment are assessed for indicators of impairment at each reporting period. If there is an indication that an
asset may be impaired, an impairment test is performed by comparing the asset’s carrying amount to its recoverable amount.
After the recognition of impairment, the depreciation charge is adjusted in future periods to reflect the asset’s revised
carrying amount. If an impairment is later reversed, the carrying amount of the asset is revised to the lower of the asset’s
recoverable amount and the carrying amount that would have been determined (net of depreciation) had there been no prior
impairment loss. The depreciation charge in future periods is adjusted to reflect the revised carrying amount.
Right-of-use assets are also included in premises and equipment.
Leasing
At inception of a contract, we assess whether a contract is or contains a lease. A contract is, or contains, a lease if the contract
conveys the right to obtain substantially all of the economic benefits from, and direct the use of, an identified asset for a periodof time in return for consideration.
When we are the lessee in a lease arrangement, we initially record a right-of-use asset and corresponding lease liability,
except for short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less.
Low-value assets are unspecialized, common, technologically unsophisticated, widely available and widely used
non-infrastructure assets. For short-term leases and leases of low-value assets, we record the lease payments as an operating
expense on a straight-line basis over the lease term.
Where we are reasonably certain to exercise extension and termination options, they are included in the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted at our incremental borrowing rate. The lease liability is subsequently measured at amortized cost using theeffective interest method, recorded in Interest expense.
The right-of-use asset is initially measured based on the initial amount of the lease liability, adjusted for lease payments
made on or before the commencement date, initial direct costs incurred, and an estimate of costs to dismantle, remove, or
restore the asset, less any lease incentives received. Costs related to dismantling and removing leasehold improvements arecapitalized as part of the leasehold improvement asset (rather than the right-of-use asset of the lease) when the leasehold
improvements are separately capitalized.
The right-of-use asset is depreciated to the earlier of the lease term and the useful life, unless ownership will transfer to RBC
or we are reasonably certain to exercise a purchase option, in which case the useful life of the right-of-use asset is used. We
apply IAS 36 Impairment of assets to determine whether a right-of-use asset is impaired and account for any identified
impairment loss as described in the premises and equipment accounting policies above.
Provisions
Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the consideration
required to settle the present obligation at the reporting date. Significant judgment is required in determining whether a present
obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions related to litigation,asset retirement obligations and other items.
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

157

Note 2 Summary of significant accounting policies, estimates and judgments (continued)
We are required to estimate the results of ongoing legal proceedings, and expenses to be incurred to dispose of capital
assets. The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting thetiming and amount of future cash flows. We record our provisions on the basis of all available information at the end of thereporting period and make adjustments on a quarterly basis to reflect current expectations. It may not be possible to predict theresolution of these matters or the timing of their ultimate resolution. Should actual results differ from our expectations, we may
incur expenses in excess of the provisions recognized. Where appropriate, we apply judgment in limiting the extent of ourprovisions-related disclosures as not to prejudice our positions in matters of dispute.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
such as an insurer, a separate asset is recognized if it is virtually certain that reimbursement will be received.
Commissions and fees
Commissions and fees primarily relate to Investment management and custodial fees, Mutual fund revenue, Securities brokeragecommissions, Services charges, Underwriting and other advisory fees, Card service revenue and Credit fees, and are recognizedbased on the applicable service contracts with clients.
Investment management and custodial fees and Mutual fund revenue are generally calculated as a percentage of daily or
period-end net asset values (NAV) based on the terms of the contract with clients and are received monthly, quarterly,
semiannually or annually, depending on the terms of the contract. Investment management and custodial fees are generally
derived from assets under management (AUM) when our clients solicit the investment capabilities of an investment manager orfrom assets under administration (AUA) where the investment strategy is directed by the client or a designated third-party
manager. Mutual fund revenue is generally derived from the daily NAV of the mutual funds. Investment management andcustodial fees and Mutual fund revenue are recognized over time when the service is provided to the client, provided that it ishighly probable that a significant reversal in the amount of revenue recognized will not occur.
Commissions earned on Securities brokerage services and Service charges that are related to the provision of specifictransaction-type services are recognized when the service is fulfilled. Where services are provided over time, revenue isrecognized as the services are provided.
Underwriting and other advisory fees primarily relate to underwriting of new issuances of debt or equity and various
advisory services. Underwriting fees are generally expressed as a percentage of the funds raised through issuance and arerecognized when the service has been completed. Advisory fees vary depending on the scope and type of engagement and can be
fixed in nature or contingent on a future event. Advisory fees are recognized over the period in which the service is provided andare recognized only to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur.
Card service revenue primarily includes interchange revenue and annual card fees. Interchange revenue is calculated as afixed percentage of the transaction amount and recognized when the card transaction is settled. Annual card fees are fixed fees
and are recognized over a 12 month period.
Credit fees are primarily earned for arranging syndicated loans and making credit available on undrawn facilities. The timingof the recognition of credit fees varies based on the nature of the services provided.
When service fees and other costs are incurred in relation to commissions and fees earned, we record these costs on a grossbasis in either Non-interest expense – Other or Non-interest expense – Human resources based on our assessment of whether wehave primary responsibility to fulfill the contract with the client and have discretion in establishing the price for the commissions
and fees earned, which may require judgment.
Earnings per share
Earnings per share is computed by dividing Net income available to common shareholders by the weighted average number ofcommon shares outstanding for the period. Net income available to common shareholders is determined after deducting
dividend entitlements of preferred shareholders and distributions on other equity instruments, any gains (losses) on redemptionof preferred shares and other equity instruments net of related income taxes and the net income attributable to non-controllinginterests.
Diluted earnings per share reflects the potential dilution that could occur if additional common shares are assumed to beissued under securities or contracts that entitle their holders to obtain common shares in the future, to the extent such
entitlement is not subject to unresolved contingencies. For contracts that may be settled in cash or in common shares at our
option, diluted earnings per share is calculated based on the assumption that such contracts will be settled in shares. Income
and expenses associated with these types of contracts are excluded from the Net income available to common shareholders, andthe additional number of shares that would be issued is included in the diluted earnings per share calculation. For stock options
whose exercise price is less than the average market price of our common shares, using the treasury stock method, they are
assumed to be exercised and the proceeds are used to repurchase common shares at the average market price for the period.
The incremental number of common shares issued under stock options and repurchased from proceeds is included in thecalculation of diluted earnings per share.
Share capital and other equity instruments
We classify a financial instrument that we issue as a financial asset, financial liability or an equity instrument in accordance withthe substance of the contractual arrangement.
Our common shares held by us are classified as treasury shares in equity and accounted for at weighted average cost. Uponthe sale of treasury shares, the difference between the sale proceeds and the cost of the shares is recognized in Retained
earnings. Financial instruments issued by us are classified as equity instruments when there is no contractual obligation totransfer cash or other financial assets. Incremental costs directly attributable to the issue of equity instruments are included inequity as a deduction from the proceeds, net of tax. Financial instruments that will be settled by a variable number of ourcommon shares upon their conversion by the holders as well as the related accrued distributions are classified as liabilities on
our Consolidated Balance Sheets. Dividends and yield distributions on these instruments are classified as Interest expense in our
Consolidated Statements of Income. For compound instruments comprised of both liability and equity components, the liability
component is initially measured at fair value with any residual amount assigned to the equity component.
158

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Future changes in accounting policy and disclosure
IFRS 17 Insurance Contracts (IFRS 17)
In May 2017, the IASB issued IFRS 17 to establish a comprehensive insurance standard which provides guidance on therecognition, measurement, presentation and disclosure of insurance contracts issued and reinsurance contracts held and will
replace the existing IFRS 4 Insurance Contracts (IFRS 4). In June 2020, the IASB issued amendments to IFRS 17, including deferralof the effective date by two years. This new standard is effective for us on November 1, 2023 and is to be applied retrospectively
with comparatives restated beginning November 1, 2022.
Under IFRS 17, insurance contracts are contracts under which we accept significant insurance risk from a policyholder byagreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. Embedded
derivatives, investment components and promises to provide non-insurance services, provided specific criteria are met, areseparated from the measurement of insurance and reinsurance contracts. Insurance and reinsurance contracts are aggregatedinto portfolios that are subject to similar risks and are managed together, and then divided into groups based on the period of
issuance and expected profitability. Groups are separately recognized and measured using one of three measurement models
depending on the characteristics of the contracts:•
For insurance contracts with direct participating features, the contracts are measured using the variable fee approach(VFA).
•For insurance contracts and reinsurance contracts held with a short duration of one year or less, the premium allocation
approach (PAA) is elected.
•
The general measurement method (GMM) is applied to all remaining contracts.
Under the GMM and VFA, the liabilities for remaining coverage and incurred claims for groups of contracts are measured as
the sum of the fulfilment cash flows and the contractual service margin (CSM), which are recalculated at the end of eachreporting period. The fulfilment cash flows consist of the present value of future cash flows and a risk adjustment for
non-financial risk. For insurance contracts, the CSM represents the unearned profit for providing insurance coverage. For
reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance. Under the PAA, the liability forremaining coverage for each group is measured as the premiums received less insurance revenue recognized for services
provided, while the liability for incurred claims is measured as the fulfillment cash flows for incurred claims plus adjustment on
any financing components. Losses from the recognition of onerous groups of insurance contracts, regardless of themeasurement model applied, are recognized in the Consolidated Statements of Income immediately.
The following are key differences between IFRS 17 and IFRS 4:•
New business profits are deferred and measured as the CSM of the insurance contract liabilities and amortized into income
as insurance contract services are provided, while losses are recognized into income immediately. Under IFRS 4, gains andlosses are recognized in income immediately. On July 18, 2023, OSFI released regulatory guidance to allow the inclusion of
the CSM in calculating CET1 capital and related ratios, therefore, there will be no impact on the capital metrics from such
reduction in retained earnings resulting from the CSM.
•
Discount rates used in calculating the present value of insurance contract liabilities are based on the characteristics of theinsurance contracts unlike IFRS 4 which is based on the assets supporting the liabilities.
•
Presentation and disclosure changes are expected due to the new requirements.
While IFRS 17 impacts the timing of profit recognition of insurance contracts, it will have no impact on total profit recognized overthe lifetime of these contracts.
Impact of IFRS 17 transition excluding the impact of reclassifications of financial assets
Upon the adoption of IFRS 17, we will apply IFRS 17 retrospectively by adjusting our Consolidated Balance Sheets as at
November 1, 2022 and restating comparative information. The full retrospective approach will be applied for all insurance andreinsurance contracts unless it is impracticable to do so. The full retrospective approach is applied to all contracts measured
using the PAA and all new contracts issued on and after November 1, 2022 measured using the GMM and VFA as if IFRS 17 hadalways been applied. Due to data availability and the inability to use hindsight, the fair value approach is applied to contracts
issued before November 1, 2022 that are measured under the GMM and VFA. Under the fair value approach, the CSM of theliability for remaining coverage is calculated as the difference between the fair value of a group of contracts and the fulfillment
cash flows measured at the date of transition.
Based on current estimates, the adoption of IFRS 17 is expected to result in a reduction in retained earnings of approximately$2.4 billion, net of taxes, as at November 1, 2022. This is attributable to the establishment of the CSM and other remeasurementchanges to insurance and reinsurance contracts and related tax effects. The estimated CSM of all insurance contracts net ofreinsurance contracts held as at November 1, 2022 was approximately $1.8 billion. These estimates are subject to change as we
finalize the quantitative impacts of the adoption in the first quarter of 2024.
Impact of reclassifications of financial assets
As permitted by IFRS 17, we will change the classification and measurement of certain eligible financial assets held in respect ofan activity that relates to insurance contracts upon the adoption of IFRS 17. We will apply these changes retrospectively byadjusting our Consolidated Balance Sheets as at November 1, 2023 with no restatement of comparative information. We expect toreclassify financial assets between fair value classification categories, which is not expected to have a net impact to total equity
nor the carrying amounts of those assets. This is subject to change as we finalize the quantitative impacts of these changes andthe quantitative impacts of adopting IFRS 17 in the first quarter of 2024.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

159

Note 2 Summary of significant accounting policies, estimates and judgments (continued)
Updates related to interest rate benchmark reform
Progress in and risks arising from the transition to ABRs
To manage our transition to ABRs, we have implemented a comprehensive enterprise-wide program and governance structurethat addresses the key areas of impact including contract remediation, funding and liquidity planning, risk management,
financial reporting and valuation, systems, processes and client education and communication. Transition activities are focusedon two broad streams of work: (i) developing new ABR linked products, and (ii) conversion of existing CDOR based contracts to
ABRs. Our program timelines are ultimately dependent on broader market acceptance of products that reference the new ABRs
and our clients’ readiness and ability to adopt the replacement products. Significant matters that we continue to evaluate
include client product offerings, short and long-term funding strategies, and our hedging programs. We continue to work towards
the recommended target date for the cessation of CDOR based products provided by our regulators and are on track with ourtransition activities to move to ABRs.
The following tables show the Bank’s significant exposures to financial instruments referencing benchmark interest rates subject
to the Reform that have yet to transition to ABRs. As at October 31, 2023, this represents our financial instruments referencing
CDOR and maturing after June 28, 2024. In the normal course of business, our derivative notional amounts may fluctuate withminimal impact to our IBOR conversion plans.
As at
October 31, 2023
(Millions of Canadian dollars)

CDOR (4)
(1)
(2)
(3)
(4)

Non-derivative
financial assets (1)Non-derivative
financial liabilities (2)$$29,496

24,735October 31, 2022
Derivative
notional$ 2,154,345

Non-derivative
financial assets (1)Non-derivative
financial liabilities (2)$$18,493

18,572Derivative
notional (3)$ 2,226,700

Non-derivative assets represent the drawn outstanding balance of Loans and Customers’ liability under acceptances and the fair value of Securities.
Non-derivative liabilities represent Subordinated debentures, Deposits and Acceptances.
Amounts have been updated from those previously presented to reflect the cessation of USD LIBOR.
Includes our exposure to financial instruments referencing interest rates substantially similar to CDOR.

The following table presents the undrawn balances of loan commitments referencing benchmark interest rates subject to the
Reform.
As at(Millions of Canadian dollars)

October 31, 2023 October 31, 2022

Authorized and committed undrawn commitments
CDOR (1), (2)

$

(1)
(2)

40,010 $26,913

Includes our exposure to financial instruments referencing interest rates substantially similar to CDOR.
Undrawn commitments exclude amounts related to drawn outstanding balances, which in certain cases may exclude extension options.

As part of the interest rate benchmark reform, the publication of all remaining USD LIBOR settings ceased on June 30, 2023 andconsistent with our transition plan, our exposure to non-derivative financial assets, non-derivative financial liabilities, derivative
notional and undrawn balances of loan commitments referencing USD LIBOR interest rates is no longer material to our financial
statements (October 31, 2022 – $57.5 billion, $1.5 billion, $5,772.4 billion and $59.3 billion, respectively). We continue to manage
significant exposures to benchmarks that have no announced plans for cessation or further reform, including the EURO Interbank
Offered Rate (EURIBOR) and Australian Bank Bill Swap Rate (BBSW), which are excluded from the tables above.

160

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Note 3 Fair value of financial instruments
Carrying value and fair value of financial instruments
The following tables provide a comparison of the carrying and fair values for each classification of financial instruments.
Embedded derivatives are presented on a combined basis with the host contracts. For measurement purposes, they are carriedat fair value when conditions requiring separation are met.
As at October 31, 2023
Carrying value and fair value

Carrying value

Fair value(Millions of Canadian dollars)

Financial
Financial
Financial
Financial
instruments
instruments instruments
instruments
classified as designated as classified as designated as
FVTPL
FVTPL
FVOCI
FVOCI

Financial
instruments
measured atamortized cost

Financial
instruments
measured atamortized costTotal
carrying
amountFinancial assets
Interest-bearing deposits with banks

$

$

$

10,230 $71,086 $71,086

Securities
Trading
Investment, net of applicable allowance

Assets purchased under reverse repurchaseagreements and securities borrowed
Loans, net of applicable allowance
RetailWholesale

Other
Derivatives
Other assets (1)Financial liabilities
Deposits
Personal
Business and government (2)Bank (3)

Other
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loanedDerivatives
Other liabilities (4)Subordinated debentures$– $60,856 $– $–10,230Total
fair value

180,651
–

9,500
–

–
127,624–
842–
91,113–
83,667

190,151
219,579

190,151
212,133

180,651

9,500

127,624

842

91,113

83,667409,730

402,284

285,869–––

54,32254,322

340,191

340,191

114
5,629

362
3,619

280
597

–
–

566,376
275,796

542,480
268,843

567,132
285,641

543,236
278,688

5,743

3,981

877

–

842,172

811,323

852,773

821,924

142,450
4,819

–
5

–
–

–
–

–
68,537–
68,537

142,450
73,361

142,450
73,361

109 $
174
–

26,702
137,454
11,462$415,135
607,447
33,204283

175,618

1,055,786

1,051,306

1,231,687

1,227,207

33,651–––

33,651

33,651–
142,629(937)–

298,679–
11–

36,559–92,50011,38636,559–92,402
11,213335,238
142,629
91,574
11,386335,238
142,629
91,476
11,213

Consolidated Financial Statements$

412,886 $ 441,946 $ 439,697
605,260
745,075
742,888
33,16044,66644,622

Royal Bank of Canada: Annual Report 2023

161

Note 3 Fair value of financial instruments (continued)
As at October 31, 2022
Carrying value and fair value

Carrying value

Fair value(Millions of Canadian dollars)

Financial
Financial
Financial
Financial
instruments
instruments instruments
instruments
classified as designated as classified as designated as
FVTPL
FVTPL
FVOCI
FVOCI

Financial
instruments
measured atamortized cost

Financial
instruments
measured atamortized costTotal
carrying
amountTotal
fair value

Financial assets
Interest-bearing deposits with banks

$

$

$

23,543 $108,011 $108,011

Securities
Trading
Investment, net of applicable allowance

Assets purchased under reverse repurchaseagreements and securities borrowed
Loans, net of applicable allowance
RetailWholesale

Other
Derivatives
Other assets (1)Financial liabilities
Deposits
Personal
Business and government (2)Bank (3)

Other
Obligations related to securities sold short
Obligations related to assets sold under
repurchase agreements and securities
loanedDerivatives
Other liabilities (4)Subordinated debentures
(1)
(2)
(3)
(4)

$

– $

84,468 $– $–23,543

138,507
–

9,698
–

–
92,063–
828–
77,127–70,073

148,205
170,018

148,205
162,964

138,507

9,698

92,063

828

77,12770,073

318,223

311,169

264,665–––

53,18053,180317,845

317,845

73
6,914

375
3,222

218
563

–
–

546,767
261,833

521,428
253,816

547,433
272,532

522,094
264,515

6,987

3,597

781

–

808,600

775,244819,965786,609

154,439
3,377

–
–

–
–

–
–

–
73,084–73,084

154,439
76,461

154,439
76,461

380,396 $605,10236,758404,932 $759,870
44,012402,653757,668
43,954

298 $
447
–

21,959152,119
7,196$

382,675
607,304
36,816$745

181,274

1,026,795

1,022,256

1,208,814

1,204,275

35,511–––35,51135,511–
153,491(360)–

248,835–
69–

25,112–
90,34810,025

25,112–
90,1609,668

273,947
153,491
90,057
10,025273,947
153,491
89,869
9,668

Includes Customers’ liability under acceptances and financial instruments recognized in Other assets.
Business and government deposits include deposits from regulated deposit-taking institutions other than banks.
Bank deposits refer to deposits from regulated banks and central banks.
Includes Acceptances and financial instruments recognized in Other liabilities.

Financial assets designated as fair value through profit or loss
For our financial assets designated as FVTPL, we measure the change in fair value attributable to changes in credit risk as thedifference between the total change in the fair value of the instrument during the period and the change in fair value calculatedusing the appropriate risk-free yield curves. For the year ended October 31, 2023, the change in fair value during the period
attributable to changes in credit risk for positions still held was a gain of $360 million and the cumulative change in fair value
attributable to changes in credit risk for positions still held was a loss of $102 million. For the year ended October 31, 2022, thechange in fair value during the period attributable to changes in credit risk for positions still held was a loss of $662 million andthe cumulative change in fair value attributable to changes in credit risk for positions still held was a loss of $490 million. As at
October 31, 2023, the extent to which credit derivatives or similar instruments mitigate the maximum exposure to credit risk was$692 million (October 31, 2022 – $589 million).
Financial liabilities designated as fair value through profit or loss
For our financial liabilities designated as FVTPL, we take into account changes in our own credit spread and the expected
duration of the instrument to measure the change in fair value attributable to changes in credit risk.
As at or for the year ended October 31, 2023 (1)Contractual
maturity
amount(Millions of Canadian dollars)Term deposits
Personal
Business and government (3)Bank (4)$Obligations related to assets sold under
repurchase agreements and securities loaned
Other liabilities

162

Royal Bank of Canada: Annual Report 2023

Carrying value

27,131 $ 26,702
147,844
137,454
11,485
11,462Difference
betweencarrying value
and contractual
maturity amount

$

(429)
(10,390)(23)

Changes in fair value attributable
to changes in credit risk includedin OCI for positions still held
During the period

$

112
683
–

Cumulative (2)$(57)(1,030)–186,460

175,618(10,842)795(1,087)

298,734
11

298,679
11

(55)
–

3
–

4
–

$ 485,205 $ 474,308$ (10,897)

798$ (1,083)

Consolidated Financial Statements$

As at or for the year ended October 31, 2022 (1)Contractual
maturity
amount(Millions of Canadian dollars)Term deposits
Personal
Business and government (3)Bank (4)$Obligations related to assets sold under
repurchase agreements and securities loaned
Other liabilities
$
(1)
(2)
(3)
(4)

Carrying value

Difference
betweencarrying value
and contractual
maturity amount$

Changes in fair value attributable
to changes in credit risk includedin OCI for positions still held
During the period

22,328 $
160,775
7,208

21,959152,119
7,196

190,311

181,274(9,037)(2,373)(1,884)

248,96369

248,835
69

(128)
–

1
–

1
–

439,343 $

430,178(9,165)$ (2,372)$ (1,883)$(369)(8,656)
(12)

$

(238)
(2,135)–

Cumulative (2)

$

(166)
(1,718)–$29 million in changes in fair value attributable to changes in credit risk were recognized in income for the year ended October 31, 2023, and $17 million in cumulativechanges in credit risk were included in income for positions still held life-to-date (October 31, 2022 – $97 million and $97 million respectively).
The cumulative change is measured from the initial designation of the liabilities as FVTPL. For the year ended October 31, 2023, $2 million of fair value gains previously
included in OCI relate to financial liabilities derecognized during the year (October 31, 2022 – $3 million of fair value gains).
Business and government term deposits include amounts from regulated deposit-taking institutions other than regulated banks.
Bank term deposits refer to amounts from regulated banks and central banks.

Net gains (losses) from financial instruments classified and designated as fair value through profit or loss
Financial instruments classified as FVTPL, which includes mainly trading securities, derivatives, trading liabilities, and financial
assets and liabilities designated as FVTPL are measured at fair value with realized and unrealized gains and losses recognized in
Non-interest income.
For the year ended(Millions of Canadian dollars)

Net gains (losses) (1)Classified as fair value through profit or loss (2)Designated as fair value through profit or loss (3)By product line (1)Interest rate and credit (4)Equities
Foreign exchange and commodities
(1)
(2)
(3)
(4)

October 31
2023

October 31
2022

$

1,998
1,499

$

(7,382)
8,543

$

3,497

$

1,161

$

3,515
(510)
492

$

1,251
(843)
753

$

3,497

$

1,161

Excludes the following amounts related to our insurance operations and included in Insurance premiums, investment and fee income in the Consolidated Statements ofIncome: Net losses from financial instruments designated as FVTPL of $371 million (October 31, 2022 – losses of $2,805 million).
Excludes derivatives designated in a hedging relationship. Refer to Note 9 for net gains (losses) on these derivatives.
For the year ended October 31, 2023, $1,524 million of net fair value gains on financial liabilities designated as FVTPL, other than those attributable to changes in our own
credit risk, were included in Non-interest income (October 31, 2022 – gains of $8,536 million).
Includes gains (losses) recognized on cross currency interest rate swaps.

Net interest income from financial instruments
Interest and dividend income arising from financial assets and financial liabilities and the associated costs of funding arereported in Net interest income.
For the year ended(Millions of Canadian dollars)Interest and dividend income (1), (2)Financial instruments measured at fair value through profit or loss
Financial instruments measured at fair value through other comprehensive income
Financial instruments measured at amortized cost

October 31
2023

October 31
2022

$

$

31,464
5,127
50,40086,991

Interest expense (1)Financial instruments measured at fair value through profit or loss
Financial instruments measured at amortized cost$

Net interest income$

28,44633,416

40,771$

61,862(1)(2)

25,12910,9991,177
28,595

8,336
9,718
18,054$22,717

Excludes the following amounts related to our insurance operations and included in Insurance premiums, investment and fee income in the Consolidated Statements ofIncome: Interest income of $451 million (October 31, 2022 – $601 million), and Interest expense of $35 million (October 31, 2022 – $6 million).
Includes dividend income for the year ended October 31, 2023 of $3,215 million (October 31, 2022 – $2,954 million), which is presented in Interest and dividend income in
the Consolidated Statements of Income.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

163

Note 3 Fair value of financial instruments (continued)
Fee income arising from financial instruments
For the year ended October 31, 2023, we earned $6,112 million in fees from banking services (October 31, 2022 – $6,118 million). For
the year ended October 31, 2023, we also earned $15,319 million in fees from investment management, trust, custodial,
underwriting, brokerage and other similar fiduciary services to retail and institutional clients (October 31, 2022 – $14,932 million).
These fees are included in Non-interest income.
Fair value of assets and liabilities measured at fair value on a recurring basis and classified using the fair value hierarchy
As at
October 31, 2023
Fair value
measurements using(Millions of Canadian dollars)
Financial assets
Interest-bearing deposits with banks$ 60,856

2,581
16,38950,439
2,577
2

–
–
–
–
–

–
–
58,826

1,245
22,6152,232

89,805

Fair value$$ 84,468

Level 2–

$ 84,468

29,256
16,38952,6884,632
2

15,024
–
1,254
1,325
–

3,779
13,25735,570
3,452
2

–
–
4
–
–

18,803
13,25736,828
4,777
2

–
–
2,266

1,245
22,61563,324––
46,592

1,308
21,162
3,593

2
7
1,874

1,310
21,16952,05998,0802,266

190,151

64,19582,123

1,887

148,205

2,731
–
275
–
–

3,528
2,748
73,020
6,192
2,672

–
–
–
–
29

6,259
2,748
73,295
6,192
2,701

1,226
–
440
–
–

2,555
2,124
43,918
5,144
2,860

–
–
–
–
28

3,781
2,124
44,358
5,144
2,888

–
–
–
38

8,265
441
27,574
338

–
–
149
466

8,265
441
27,723
842

–
–
–
36

7,524
524
25,569
395

–
–
151
397

7,524
524
25,720828

3,044

124,778

644

128,466

1,702

90,613576

92,891––

285,869
8,742

–
1,859

285,869
10,601––

264,665
9,673

–
1,692

264,665
11,365

–
–
–
2,352
–

39,24389,644224
13,927(1,805)

290
4
–
111
4

39,53389,648224
16,390(1,801)

–
–
–
3,939
–

39,804
99,424388
14,786(2,100)

263
13
–
62
45

40,06799,437388
18,787(2,055)2,352

141,233

409

143,994(1,544)

3,939

152,302

383

–

1,392

3,421

11

$96,593$722,979$ 5,189$$ 26,428
137,628
11,462

$

–
–
–

383
–
–

$

Level 3

Netting
adjustments

Level 1

(1,544)

Financial liabilities
Deposits
Personal
Business and government
Bank
Other
Obligations related to securities sold short
Obligations related to assets sold under repurchase agreements andsecurities loaned
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Other contracts
Valuation adjustments

164$

26,675
–
2,249
2,055
–

Total derivatives
Other assets

(2)
(3)
(4)

$

$ 60,856

Total gross derivatives
Netting adjustments(1)

Fair value–

Assets purchased under reverse repurchase agreements andsecurities borrowed
Loans
Other
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Other contracts
Valuation adjustments

Total derivatives
Other liabilities

Netting
adjustments

Level 2

Investment
Debt issued or guaranteed by:
Canadian government (1)FederalProvincial and municipal
U.S. federal, state, municipal and agencies (1)Other OECD government
Mortgage-backed securities (1)Asset-backed securities
CDO
Non-CDO securities
Corporate debt and other debt
Equities

Total gross derivatives
Netting adjustments

Level 3

Level 1$

Securities
Trading
Debt issued or guaranteed by:
Canadian government (1)FederalProvincial and municipal
U.S. federal, state, municipal and agencies (1), (2)Other OECD government (3)Mortgage-backed securities (1)Asset-backed securities
Non-CDO securities (4)Corporate debt and other debt
Equities

October 31, 2022
Fair value
measurements using$–(2,185)

156,624(2,185)

142,450
4,824

1,221

2,141

15

$

(1,544) $ 823,217$71,057$685,985$ 4,553$(2,185) $ 759,410$$ 26,811
137,628
11,462$$ 22,016
152,566
7,196

$

$

$ 22,257
152,566
7,196

–
–
–

241
–
–

154,4393,377

14,391

19,260–33,651

16,383

19,128–35,511–

298,679–

298,679–

248,835–

248,835

–
–
–
3,119
–

41,24981,750176
17,306
(982)

952
53
–
549
1

42,20181,803
176
20,974
(981)

–
–
–
3,847
–

39,592
94,310125
16,663
(967)

1,122
145
–
847
(8)

40,71494,455125
21,357
(975)

3,119

139,499

1,555

144,173(1,544)

3,847

149,7232,106(1,544)370(1,296)–$17,880$631,660$ 1,938$(2,185)

142,629
(926)

341

(632)

–

(1,544) $ 649,934$20,571$598,832$ 2,347

155,676(2,185)
153,491(291)$(2,185) $ 619,565

As at October 31, 2023, residential and commercial mortgage-backed securities (MBS) included in all fair value levels of trading securities were $14,345 million and $nil
(October 31, 2022 – $12,273 million and $nil), respectively, and in all fair value levels of Investment securities were $24,365 million and $2,618 million (October 31, 2022 –$23,362 million and $2,755 million), respectively.
United States (U.S.).
Organisation for Economic Co-operation and Development (OECD).
Collateralized debt obligations (CDO).
Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Fair values of our significant assets and liabilities measured on a recurring basis are determined and classified in the fair value
hierarchy table using the following valuation techniques and inputs.

Interest-bearing deposits with banks
The majority of our Interest-bearing deposits with banks are designated as FVTPL. These FVTPL deposits are composed of shortdated deposits placed with banks, and are included in Interest-bearing deposits with banks in the fair value hierarchy table. The
fair values of these instruments are determined using the discounted cash flow method. The inputs to the valuation models
include interest rate swap curves and credit spreads, where applicable. They are classified as Level 2 instruments in thehierarchy as the inputs are observable.
Government bonds (Canadian, U.S. and other OECD governments)
Government bonds are included in Canadian government debt, U.S. federal, state, municipal and agencies debt, Other OECDgovernment debt and Obligations related to securities sold short in the fair value hierarchy table. The fair values of government
issued or guaranteed debt securities in active markets are determined by reference to recent transaction prices, broker quotes,
or third-party vendor prices and are classified as Level 1 in the hierarchy. The fair values of securities that are not traded in
active markets are based on either security prices, or valuation techniques using implied yields and risk spreads derived fromprices of actively traded and similar government securities. Securities with observable prices or rate inputs as compared totransaction prices, dealer quotes or vendor prices are classified as Level 2 in the hierarchy. Securities where inputs areunobservable are classified as Level 3 in the hierarchy.
Corporate and U.S. municipal bonds
The fair values of corporate and U.S. municipal bonds, which are included in Corporate debt and other debt, U.S. federal, state,municipal and agencies debt and Obligations related to securities sold short in the fair value hierarchy table, are determinedusing either recently executed transaction prices, broker quotes, pricing services, or in certain instances, the discounted cash
flow method using rate inputs such as benchmark yields (CDOR, Secured Overnight Financing Rate (SOFR) and other similarreference rates) and risk spreads of comparable securities. Securities with observable prices or rate inputs are classified as
Level 2 in the hierarchy. Securities where inputs are unobservable are classified as Level 3 in the hierarchy.
Asset-backed securities and Mortgage-backed securities
Asset-backed securities (ABS) and MBS are included in Asset-backed securities, Mortgage-backed securities, Canadiangovernment debt, U.S. federal, state, municipal and agencies debt, and Obligations related to securities sold short in the fairvalue hierarchy table. Inputs for valuation of ABS and MBS are, when available, traded prices, dealer or lead manager quotes,
broker quotes and vendor prices of the identical securities. When prices of the identical securities are not readily available, we
use industry standard models with inputs such as discount margins, yields, default, prepayment and loss severity rates that are
implied from transaction prices, dealer quotes or vendor prices of comparable instruments. Where security prices and inputs areobservable, ABS and MBS are classified as Level 2 in the hierarchy. Otherwise, they are classified as Level 3 in the hierarchy.
Equities
Equities consist of listed and unlisted common shares, private equities, mutual funds and hedge funds with certain redemption
restrictions and are included in equities and obligations for securities sold short. The fair values of common shares are based onquoted prices in active markets, where available, and are classified as Level 1 in the hierarchy. Where quoted prices in active
markets are not readily available, fair value is determined based on quoted market prices for similar securities or throughvaluation techniques, such as multiples of earnings and the discounted cash flow method with forecasted cash flows anddiscount rate as inputs. Private equities are classified as Level 3 in the hierarchy as their inputs are not observable. Hedge funds
are valued using Net Asset Values (NAV). If we can redeem a hedge fund at NAV prior to the next quarter end, the fund isclassified as Level 2 in the hierarchy. Otherwise, it is classified as Level 3 in the hierarchy.
Loans
Loans include base metal loans, corporate loans, banker acceptances and asset-backed financing loans. Fair values are
determined based on market prices, if available, or discounted cash flow method using the following inputs: market interest
rates, base metal commodity prices, market based spreads of assets with similar credit ratings and terms to maturity, LGD,
expected default frequency implied from credit derivative prices, if available, and relevant pricing information such as
contractual rate, origination and maturity dates, redemption price, coupon payment frequency and day count convention. Loans
with market prices or observable inputs are classified as Level 2 in the hierarchy and loans with unobservable inputs that havesignificant impacts on the fair values are classified as Level 3 in the hierarchy.
Derivatives
The fair values of exchange-traded derivatives, such as interest rate and equity options and futures, are based on quoted market
prices and are typically classified as Level 1 in the hierarchy. OTC derivatives primarily consist of interest rate contracts, foreignexchange contracts, commodity derivatives, equity derivatives and credit derivatives. The exchange-traded or OTC interest rate,
foreign exchange and commodity and equity derivatives are included in Interest rate contracts, Foreign exchange contracts andOther contracts, respectively, in the fair value hierarchy table. The fair values of OTC derivatives are determined using valuation
models when quoted market prices or third-party consensus pricing information are not available. The valuation models, such as
discounted cash flow method or Black-Scholes option model, incorporate observable or unobservable inputs for interest andforeign exchange rates, equity and commodity prices (including indices), credit spreads, corresponding market volatility levels,and other market-based pricing factors. Other adjustments to fair value include bid-offer, CVA, FVA, OIS, parameter and model
uncertainties, and unrealized gain or loss at inception of a transaction. A derivative instrument is classified as Level 2 in thehierarchy if observable market inputs are available or the unobservable inputs are not significant to the fair value. Otherwise, it
is classified as Level 3 in the hierarchy.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

165

Note 3 Fair value of financial instruments (continued)

Securities borrowed or purchased under resale agreements and securities loaned or sold under repurchase agreements
In the fair value hierarchy table, these instruments are included in Assets purchased under reverse repurchase agreements andsecurities borrowed, and Obligations related to assets sold under repurchase agreements and securities loaned. The fair valuesof these contracts are determined using valuation techniques such as the discounted cash flow method using interest rate
curves as inputs. They are classified as Level 2 instruments in the hierarchy as the inputs are observable.
Deposits
A majority of our deposits are measured at amortized cost but certain deposits are designated as FVTPL. These FVTPL deposits
include deposits taken from clients, issuances of certificates of deposits and promissory notes, and interest rate and equity
linked notes. The fair values of these instruments are determined using the discounted cash flow method and derivative option
valuation models. The inputs to the valuation models include benchmark yield curves, credit spreads, interest rates, equity andinterest rate volatility, dividends and correlation, where applicable. They are classified as Level 2 or 3 instruments in thehierarchy, depending on the significance of the unobservable credit spreads, volatility, dividend and correlation rates.
Quantitative information about fair value measurements using significant unobservable inputs (Level 3 Instruments)
The following table presents fair values of our significant Level 3 financial instruments, valuation techniques used to determine
their fair values, ranges and weighted averages of unobservable inputs.
As at October 31, 2023 (Millions of Canadian dollars, except for prices, percentages and ratios)
Range of input values (1), (2)Fair value

Reporting line in the fair value
hierarchy table

Products
Corporate debt and related
derivatives

Government debt andmunicipal bonds
Private equities, hedge fundinvestments and related
equity derivatives

Interest rate derivatives andinterest-rate-linked
structured notes (6), (7)Corporate debt and other debt
Loans
Derivative related liabilities
Corporate debt and other debt

Valuationtechniques

Assets Liabilities$

Price-based
Discounted cash flows

–
1,859
$

PricesCredit spread
Credit enhancement

Low$

Weighted
average /InputsHigh distribution

9.88 $ 107.13 $
1.89%
9.96%
11.70%
15.60%

87.66
5.93%
13.00%

2

149

Discounted cash flows

Yields

7.73%

10.38%

8.60%

Equities
Derivative related liabilities

2,732

Market comparable
Price-based
Discounted cash flows

EV/EBITDA multiples
P/E multiples
EV/Rev multiples
Liquidity discounts (4)Discount rate
NAV / prices (5)

4.16X
6.60X
1.00X
10.00%
8.50%
n.a.

14.90X
22.60X
5.00X
40.00%
13.30%
n.a.

6.93X
8.60X
3.00X
16.91%
10.70%
n.a.

Derivative related assets
Derivative related liabilities

293

Discounted cash flows
Option pricing modelInterest rates
CPI swap rates
IR-IR correlations
FX-IR correlations
FX-FX correlations

2.39%
1.84%
19.00%
29.00%
68.00%

5.18%
2.35%
67.00%
56.00%
68.00%

High
Even
Even
Even
Even

Discounted cash flows
Option pricing model

Dividend yields
Equity (EQ)-EQ correlations
EQ-FX correlations
EQ volatilities

0.14%
10.71%
32.50%
96.49%(83.15)%38.44%
6.70% 110.72%

Lower
MiddleMiddleLower

Equity derivatives and equitylinked structured
notes (6), (7)Derivative related assets
Deposits
Derivative related liabilities

–

995

111
383
485

Other (8)Asset-backed securities
Derivative related assets
Other assets
Mortgage-backed securities
U.S. state, municipal andagencies debt
Derivative related liabilities
Total

166

Significant
unobservable
inputs (3)

–
5
11
29
–
73
$ 5,189

Royal Bank of Canada: Annual Report 2023

$ 1,938

Consolidated Financial Statements

As at October 31, 2022 (Millions of Canadian dollars, except for prices, percentages and ratios)
Range of input values (1), (2)Fair value

Products
Corporate debt and related
derivatives

Government debt andmunicipal bonds
Private equities, hedge fundinvestments and related
equity derivatives

Interest rate derivatives andinterest-rate-linked
structured notes (6), (7)Reporting line in the fair value
hierarchy table
Corporate debt and other debt
Loans
Derivative related liabilities

Assets Liabilities$

Valuationtechniques
Price-based
Discounted cash flows

7
1,692
$

Corporate debt and other debt

Significant
unobservable
inputs (3)PricesCredit spread
Credit enhancement

Low$

Weighted
average /InputsHigh distribution

1.00 $ 111.90 $
1.67%
10.73%
11.70%
15.60%

85.64
6.20%
13.00%

130

151

Discounted cash flows

Yields7.85%

10.72%

8.92%

Equities
Derivative related liabilities

2,271

Market comparable
Price-based
2 Discounted cash flows

EV/EBITDA multiples
P/E multiples
EV/Rev multiples
Liquidity discounts (4)Discount rate
NAV / prices (5)

3.97X
8.47X
0.35X
10.00%
10.80%
n.a.

14.31X
24.04X
5.77X
40.00%
10.80%
n.a.

8.59X
12.46X
3.88X
17.35%
10.80%
n.a.

Derivative related assets
Derivative related liabilities

270

Discounted cash flows
Option pricing modelInterest rates
CPI swap rates
IR-IR correlations
FX-IR correlations
FX-FX correlations

1.88%
1.98%
19.00%
29.00%
68.00%

4.49%
2.59%
67.00%
56.00%
68.00%

High
Even
Even
Even
Even

Discounted cash flows
Dividend yields
Option pricing model Equity (EQ)-EQ correlations
241
EQ-FX correlations
655
EQ volatilities(0.63)%
33.00%(83.15)%
7.00%

8.28%
94.90%
38.44%
129.00%

Lower
MiddleMiddle
Upper

1,216

Equity derivatives and equitylinked structured
notes (6), (7)Derivative related assets
Deposits
Derivative related liabilities

62

Other (8)Asset-backed securities
Derivative related assets
Other assets
Mortgage-backed securities
U.S. state, municipal and agencies
debt
Derivative related liabilities
Total

(1)

(2)

(3)
(4)
(5)

(6)

(7)
(8)
n.a.

2
51
15
28
4
103
$

4,553 $

2,347

The low and high input values represent the actual highest and lowest level inputs used to value a group of financial instruments in a particular product category. These
input ranges do not reflect the level of input uncertainty, but are affected by the different underlying instruments within the product category. The input ranges will
therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. Where provided, the weighted averageof the input values is calculated based on the relative fair values of the instruments within the product category. The weighted averages for derivatives are not presented
in the table as they would not provide a comparable metric; instead, distribution of significant unobservable inputs within the range for each product category is
indicated in the table.
Price-based inputs are significant for certain debt securities and are based on external benchmarks, comparable proxy instruments or pre-quarter-end trade data. For
these instruments, the price input is expressed in dollars for each $100 par value. For example, with an input price of $105, an instrument is valued at a premium over its
par value.
The significant unobservable inputs include the following: (i) Enterprise Value (EV); (ii) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA);(iii) Price / Earnings (P/E); (iv) Revenue (Rev); (v) Consumer Price Index (CPI); (vi) Interest Rate (IR); (vii) Foreign Exchange (FX); and (viii) Equity (EQ).
Fair value of securities with liquidity discount inputs totalled $483 million (October 31, 2022 – $373 million).
NAV of a hedge fund is total fair value of assets less liabilities divided by the number of fund units. Private equities are valued based on NAV or valuation techniques. The
range for NAV per unit or price per share has not been disclosed for the hedge funds or private equities due to the dispersion of prices given the diverse nature of theinvestments.
The level of aggregation and diversity within each derivative instrument category may result in certain ranges of inputs being wide and inputs being unevenly distributed
across the range. In the table, we indicated whether the majority of the inputs are concentrated toward the upper, middle, or lower end of the range, or evenly distributed
throughout the range.
The structured notes contain embedded equity or interest rate derivatives with unobservable inputs that are similar to those of the equity or interest rate derivatives.
Other primarily includes certain insignificant instruments such as auction rate securities, commodity derivatives, foreign exchange derivatives, contingent
considerations, bank-owned life insurance and retractable shares.
not applicable

Sensitivity to unobservable inputs and interrelationships between unobservable inputs
Yield, credit spreads/discount margins
A financial instrument’s yield is the interest rate used to discount future cash flows in a valuation model. An increase in the yield,
in isolation, would result in a decrease in a fair value measurement and vice versa. A credit spread/discount margin is thedifference between a debt instrument’s yield and a benchmark instrument’s yield. Benchmark instruments have high credit
quality ratings, similar maturities and are often government bonds. The credit spread/discount margin therefore represents thediscount rate used to determine the present value of future cash flows of an asset to reflect the market return required for
uncertainty in the estimated cash flows. The credit spread/discount margin for an instrument forms part of the yield used in a
discounted cash flow method.

Funding spread
Funding spreads are credit spreads specific to funding or deposit rates. A decrease in funding spreads, on its own, will increase
the fair value of our liabilities, and vice versa.
Default rates
A default rate is the rate at which borrowers fail to make scheduled loan payments. A decrease in the default rate will typicallyincrease the fair value of the loan, and vice versa. This effect will be significantly more pronounced for a non-government
guaranteed loan than a government guaranteed loan.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

167

Note 3 Fair value of financial instruments (continued)

Prepayment rates
A prepayment rate is the rate at which a loan will be repaid in advance of its expected amortization schedule. Prepaymentschange the future cash flows of a loan. An increase in the prepayment rate in isolation will result in an increase in fair value when
the loan interest rate is lower than the current reinvestment rate, and a decrease in the prepayment rate in isolation will result ina decrease in fair value when the loan interest rate is lower than the current reinvestment rate. Prepayment rates are generally
negatively correlated with interest rates.
Recovery and loss severity rates
A recovery rate is an estimation of the amount that can be collected in a loan default scenario. The recovery rate is the recoveredamount divided by the loan balance due, expressed as a percentage. The inverse concept of recovery is loss severity. Lossseverity rate is an estimation of the loan amount not collected when a loan defaults. The loss severity rate is the loss amountdivided by the loan balance due, expressed as a percentage. Generally, an increase in the recovery rate or a decrease in the loss
severity rate will increase the loan fair value, and vice versa.
Volatility rates
Volatility measures the potential variability of future prices and is often measured as the standard deviation of price movements.
Volatility is an input to option pricing models used to value derivatives and issued structured notes. Volatility is used in valuing
equity, interest rate, commodity and foreign exchange options. A higher volatility rate means that the underlying price or rate
movements are more likely to occur. Higher volatility rates may increase or decrease an option’s fair value depending on theoption’s terms. The determination of volatility rates is dependent on various factors, including but not limited to, the underlying’s
market price, the strike price and maturity.
Dividend yields
A dividend yield is the underlying equity’s expected dividends expressed as an annual percentage of its price. Dividend yield isused as an input for forward equity price and option models. Higher dividend yields will decrease the forward price, and viceversa. A higher dividend yield will increase or decrease an option’s value, depending on the option’s terms.
Correlation rates
Correlation is the linear relationship between the movements in two different variables. Correlation is an input to the valuation ofderivative contracts and issued structured notes when an instrument’s payout is determined by correlated variables. Whenvariables are positively correlated, an increase in one variable will result in an increase in the other variable. When variables arenegatively correlated, an increase in one variable will result in a decrease in the other variable. The referenced variables can bewithin a single asset class or market (equity, interest rate, commodities, credit and foreign exchange) or between variables indifferent asset classes (equity to foreign exchange, or interest rate to foreign exchange). Changes in correlation will either
increase or decrease a financial instrument’s fair value depending on the terms of the instrument.
Interest rates
An interest rate is the percentage amount charged on a principal or notional amount. Increasing interest rates will decrease thediscounted cash flow value of a financial instrument, and vice versa.
Consumer Price Index swap rates
A CPI swap rate is expressed as a percentage of an increase in the average price of a basket of consumer goods and services,such as transportation, food and medical care. An increase in the CPI swap rate will cause inflation swap payments to be larger,
and vice versa.
EV/EBITDA multiples, P/E multiples, EV/Rev multiples, and liquidity discounts
Private equity valuation inputs include EV/EBITDA multiples, P/E multiples and EV/Rev multiples. These are used to calculate
either enterprise value or share value of a company based on a multiple of earnings or revenue estimates. Higher multiples
equate to higher fair values for all multiple types, and vice versa. A liquidity discount may be applied when few or no transactions
exist to support the valuations.
Credit Enhancement
Credit enhancement is an input to the valuation of securitized transactions and is the amount of loan loss protection for a seniortranche. Credit enhancement is expressed as a percentage of the transaction sizes. An increase in credit enhancement will cause
the credit spread to decrease and the tranche fair value to increase, and vice versa.
Interrelationships between unobservable inputs
Unobservable inputs, including the above discount margin, default rate, prepayment rate, and recovery and loss severity rates,
may not be independent of each other. For example, the discount margin can be affected by a change in default rate, prepayment
rate, or recovery and loss severity rates. Discount margins will generally decrease when default rates decline or when recovery
rates increase.

168

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Changes in fair value measurement for instruments measured on a recurring basis and categorized in Level 3
For the year ended October 31, 2023

(Millions of Canadian dollars)

AssetsSecurities
Trading
Debt issued or guaranteed by:
U.S. state, municipal and agencies
Asset-backed securities
Non-CDO securities
Corporate debt and other debt
Equities

Gains
Gains
Gains
Fair value(losses) (losses)
Settlement Transfers Transfers Fair value (losses) included
at beginning included in included Purchases (sales) andinto
out of at end of
in earnings forof period
earnings in OCI (1) (issuances)other (2)Level 3
Level 3
period positions still held$

Investment
Mortgage-backed securities
Corporate debt and other debt
Equities

$

–

$

–

$

–

$

(4)

$

–

$

–

$

–

$

–

2
7
1,874

–
–
(196)

–
–
21

–
2
586

(2)
(16)
(67)

–
17
48

–
(10)
–

–
–
2,266

–
–
(154)

1,887

(196)

21

588

(89)

65

(10)

2,266

(154)

28
151
397

–
–
–

–
9
70

1
–
1

–
(11)
(2)

–
–
–

–
–
–

29
149
466

n.a.
n.a.
n.a.

576

–

79

2

(13)

–

–

644

n.a.

1,692

(95)

33

1,443

(868)

30

(376)

1,859

(44)

(859)
(132)
(785)
53
15

(63)
10
83
–
–

5
10
4
–
1

(48)
(14)
(143)
–
–

235
44
78
(50)
(5)

42
–
(159)
–
–

26
33
484
–
–

(662)
(49)
(438)
3
11

(43)
8
152
–
–

$ 2,447$ (261)$ 153$ 1,828$ (668)$ (22)$ 157$ 3,634$ (81)$ (241)

$

$

$

(260)

$

23

$ (134)$ 224$ (383)

$

24

–

–

–

–

$

(260)

$

23

$ (134)$ 224$ (383)

$

24

Loans
Other
Net derivative balances (3)Interest rate contracts
Foreign exchange contracts
Other contracts
Valuation adjustments
Other assets
Liabilities
Deposits
Other
Other liabilities4–$ (241)

5
–

$

5

–
–

$

–

–

–

For the year ended October 31, 2022

(Millions of Canadian dollars)

AssetsSecurities
Trading
Debt issued or guaranteed by:
U.S. state, municipal and agencies
Asset-backed securities
Non-CDO securities
Corporate debt and other debt
Equities

Gains
Gains
Fair value(losses) (losses)
Settlement Transfers Transfers Fair value
at beginning included in included Purchases (sales) andinto
out of at end ofof period
earnings in OCI (1) (issuances)other (2)Level 3
Level 3
period$Investment
Mortgage-backed securities
Corporate debt and other debt
Equities

(1)

(2)
(3)
n.a.

$

–

$

2

$

–

$

(23)

$

–

$

–

$

4

$

–

2
25
1,530

–
(3)
14

–
–
100

–
–
314

–
(6)
(82)

–
9
1

–
(18)
(3)

2
7
1,874

–
–
43

1,582

11

102

314

(111)

10

(21)

1,887

43

20
152
334

–
–
–

8
2
51

–
–
11

–
–
(1)

–
–
37

–
(3)
(35)

28
151
397

n.a.
n.a.
n.a.

506

–

61

11

(1)

37

(38)

576

n.a.

1,077

(25)

(37)

407

(466)

802

(66)

1,692

(78)

(635)
47
(393)
20
–

(187)
(103)
165
–
–

(5)
(2)
(34)
–
1

17
(22)
(245)
25
15

64
3
70
(11)
(1)

(13)
5
(406)
19
–

(100)
(60)
58
–
–

(859)
(132)
(785)
53
15

(16)
(90)
271
–
–

$ 2,204$ (139)

$

86

$

522

$ (453)$ 454$ (227) $ 2,447

$ 130

$

(151)

$

$

(3)

$

(120)

$

26

$ (143)

$ 148

$

19

8

–

–

$

(158)

$

(3)

$

(120)

$

34

$ (143)

$ 148

$

19

Loans
Other
Net derivative balances (3)Interest rate contracts
Foreign exchange contracts
Other contracts
Valuation adjustments
Other assets
Liabilities
Deposits
Other
Other liabilities

25

Gains
(losses) includedin earnings for
positions still held

(7)

2
(1)

$

1

–

–

$

(241)

$

(241)

–

–

These amounts include the foreign currency translation gains or losses arising on consolidation of foreign subsidiaries relating to the Level 3 instruments, whereapplicable. The unrealized gains on Investment securities recognized in OCI were $65 million for the year ended October 31, 2023 (October 31, 2022 – gains of $50 million)
excluding the translation gains or losses arising on consolidation.
Other includes amortization of premiums or discounts recognized in net income.
Net derivatives as at October 31, 2023 included derivative assets of $409 million (October 31, 2022 – $383 million) and derivative liabilities of $1,555 million (October 31, 2022 –$2,106 million).
not applicable

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

169

Note 3 Fair value of financial instruments (continued)
Transfers between fair value hierarchy levels for instruments carried at fair value on a recurring basis
Transfers between Level 1 and Level 2, and transfers into and out of Level 3 are assumed to occur at the end of the period. For an
asset or a liability that transfers into Level 3 during the period, the entire change in fair value for the period is excluded from theGains (losses) included in earnings for positions still held column of the above reconciliation, whereas for transfers out of Level 3
during the period, the entire change in fair value for the period is included in the same column of the above reconciliation.
Transfers between Level 1 and 2 are dependent on whether fair value is obtained on the basis of quoted market prices in active
markets (Level 1).
During the year ended October 31, 2023, significant transfers out of Level 1 to Level 2 included Trading U.S. federal, state,municipal and agencies debt of $763 million, Investment U.S. federal, state, municipal and agencies debt of $435 million and
Obligations related to securities sold short of $151 million. During the year ended October 31, 2022, there were no significant
transfers out of Level 1 to Level 2.
During the year ended October 31, 2023 and October 31, 2022, there were no significant transfers out of Level 2 to Level 1.
Transfers between Level 2 and Level 3 are primarily due to either a change in the market observability for an input, or a change inan unobservable input’s significance to a financial instrument’s fair value.
During the year ended October 31, 2023, significant transfers out of Level 2 to Level 3 included Other contracts and Deposits
due to changes in the significance of unobservable inputs and changes in the market observability of inputs. During the year
ended October 31, 2022, significant transfers out of Level 2 to Level 3 included Loans and Other contracts due to changes in themarket observability of inputs and changes in the significance of unobservable inputs.
During the year ended October 31, 2023, significant transfers out of Level 3 to Level 2 included Other contracts, Loans andDeposits due to changes in the market observability of inputs and changes in the significance of unobservable inputs. During theyear ended October 31, 2022, there were no significant transfers out of Level 3 to Level 2.
Positive and negative fair value movements of Level 3 financial instruments from using reasonably possible alternative
assumptions
A financial instrument is classified as Level 3 in the fair value hierarchy if one or more of its unobservable inputs may
significantly affect the measurement of its fair value. In preparing the financial statements, appropriate levels for theseunobservable input parameters are chosen so that they are consistent with prevailing market evidence or management
judgment. Due to the unobservable nature of the prices or rates, there may be uncertainty about the valuation of these Level 3
financial instruments.

170

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

The following table summarizes the impacts to fair values of Level 3 financial instruments using reasonably possible
alternative assumptions. This sensitivity disclosure is intended to illustrate the potential impact of the relative uncertainty in thefair value of Level 3 financial instruments. In reporting the sensitivities below, we offset balances in instances where: (i) the movein valuation factors cause an offsetting positive and negative fair value movement, (ii) both offsetting instruments are in Level 3,and (iii) exposures are managed and reported on a net basis. With respect to overall sensitivity, it is unlikely in practice that allreasonably possible alternative assumptions would simultaneously be realized.
As at
October 31, 2023

Level 3fair value(Millions of Canadian dollars)

Securities
Trading
Debt issued or guaranteed by:
U.S. state, municipal andagencies
Asset-backed securities
Corporate debt and other debt
Equities
Investment
Mortgage-backed securities
Corporate debt and other debt
Equities
Loans
Derivatives
Other assets
Deposits
Derivatives
Other
Other liabilities

$

–
–
–
2,266

Positive fair value
movement fromusing reasonably
possiblealternatives

$

29
149
466
1,859
409
11

–
–
–
50

October 31, 2022
Negative fair value
movement fromusing reasonably
possiblealternatives

$

4
11
48
33
10
–

–
–
–
(43)

Level 3fair value

$

4
2
7
1,874

(4)
(10)
(47)
(37)
(7)
–

28
151
397
1,692
383
15

Positive fair value
movement fromusing reasonably
possiblealternatives

$

–
–
–
27

Negative fair value
movement fromusing reasonably
possiblealternatives

$

4
12
38
60
5
–

–
–
–
(23)
(4)
(10)
(39)
(62)
(3)
–

$

5,189

$

156

$

(148)

$ 4,553

$

146

$

(141)

$

(383)
(1,555)

$

26
59

$

(26)
(66)

$

$

9
55

$

(9)
(57)

–

–

$

85

$

(92)

$ (2,347)

$

64

$

(66)

–
$ (1,938)–(241)(2,106)––

Sensitivity results
As at October 31, 2023, the effects of applying other reasonably possible alternative assumptions to the Level 3 asset positions
would be an increase of $156 million and a reduction of $148 million in fair value, of which $63 million and $61 million would berecorded in Other components of equity, respectively. The effects of applying these assumptions to the Level 3 liability positions
would result in a decrease of $85 million and an increase of $92 million in fair value.
Level 3 valuation inputs and approaches to developing reasonably possible alternative assumptions
The following is a summary of the unobservable inputs used in the valuation of the Level 3 instruments and our approaches todeveloping reasonably possible alternative assumptions used to determine sensitivity.
Financial assets or
liabilities
Asset-backed securities,
corporate debt, government
debt, municipal bonds andloans
Private equities, hedge fundinvestments and related
equity derivatives

Interest rate derivatives

Equity derivatives

Bank funding and deposits
Structured notes

Sensitivity methodology
Sensitivities are determined based on adjusting, plus or minus one standard deviation, thebid-offer spreads or input prices if a sufficient number of prices are received, adjusting input
parameters such as credit spreads or using high and low vendor prices as reasonably possible
alternative assumptions.
Sensitivity of direct private equity investments is determined by (i) adjusting the discount rate
by 2% when the discounted cash flow method is used to determine fair value, (ii) adjusting theprice multiples based on the range of multiples of comparable companies when price-multiplesbased models are used, or (iii) using an alternative valuation approach. The private equity fund,hedge fund and related equity derivative NAVs are provided by the fund managers, and as aresult, there are no other reasonably possible alternative assumptions for these investments.
Sensitivities of interest rate and cross currency swaps are derived using plus or minus one
standard deviation of the inputs, and an amount representing model and parameter uncertainty,
where applicable.
Sensitivity of the Level 3 position is determined by shifting the unobservable model inputs byplus or minus one standard deviation of the pricing service market data including volatility,
dividends or correlations, as applicable.
Sensitivities of deposits are calculated by shifting the funding curve by plus or minus certain
basis points.
Sensitivities for interest-rate-linked and equity-linked structured notes are derived by adjusting
inputs by plus or minus one standard deviation, and for other deposits, by estimating areasonable move in the funding curve by plus or minus certain basis points.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

171

Note 3 Fair value of financial instruments (continued)
Fair value for financial instruments that are carried at amortized cost and classified using the fair value hierarchy
As at October 31, 2023

(Millions of Canadian dollars)Interest-bearing deposits with banks
Amortized cost securities (2)Assets purchased under reverse
repurchase agreements andsecurities borrowed
Loans
RetailWholesale

Fair value may not approximate carrying value

Fair value
approximatescarrying value (1)$ 10,230–

Other assets
Deposits
Personal
Business and government
Bank
Obligations related to assets soldunder repurchase agreements andsecurities loaned
Other liabilities
Subordinated debentures

Fair value measurements using
Level 1$–
34

Level 2$–
83,633

$

–
–

Total
fair value

Total

Level 3$–
83,667$

10,23083,66739,528–

14,794–

14,79454,32270,6068,231––

466,962
254,342

4,912
6,270

471,874
260,612542,480
268,843

78,837–

721,304

11,182

732,486

811,323

67,400

–

914

223

1,137

68,537

195,995

34

820,645

11,405

832,084

1,028,079

252,779
385,727
16,902–––

159,669
218,761
16,251438
772
7160,107219,533
16,258412,886
605,260
33,160655,408–

394,6811,217

395,898

1,051,306

36,55976,982
–

–
–
–

–
1,856
11,213–
13,564––
15,42011,21336,55992,402
11,213–$ 407,750$ 14,781$ 422,531$ 1,191,480$ 768,949$

As at October 31, 2022

(Millions of Canadian dollars)Interest-bearing deposits with banks
Amortized cost securities (2)Assets purchased under reverse
repurchase agreements andsecurities borrowed
Loans
RetailWholesale
Other assets
Deposits
Personal
Business and government
Bank
Obligations related to assets soldunder repurchase agreements andsecurities loaned
Other liabilities
Subordinated debentures$

23,543–

Fair value measurements using
Level 1$––

Level 2$–70,073

$

–
–

Total
fair value

Total

Level 3$–70,073$23,54370,07342,224–

10,956–

10,95653,18070,162
17,943––446,809230,880

4,457
4,993

451,266
235,873

521,428
253,816

88,105–

677,689

9,450

687,139775,244

72,198

–

716

170

886

73,084226,070–

759,434

9,620

769,054995,124

271,414406,045
22,638–––

108,549
198,265
14,120433
792–

108,982
199,057
14,120380,396605,10236,758700,097–

320,934

1,225

322,159

1,022,256

25,11277,801
–

–
–
–

–
1,554
9,608

–
10,80560–
12,3599,668

25,112
90,1609,668

332,096$ 12,090$ 344,186$ 1,147,196$ 803,010(1)(2)

Fair value may not approximate carrying value

Fair value
approximatescarrying value (1)

$

–

$

Certain financial instruments have not been assigned to a level as the carrying amount approximates their fair values.
Included in Securities – Investment, net of applicable allowance on the Consolidated Balance Sheets.

Fair values of financial assets and liabilities carried at amortized cost and disclosed in the table above are determined using thefollowing valuation techniques and inputs.

172

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Amortized cost securities
Fair values of government bonds, corporate bonds, and ABS are based on quoted prices. Fair values of certain Non-OECD
government bonds are based on vendor prices or the discounted cash flow method with yield curves of other countries’
government bonds as inputs. For ABS, where market prices are not available, the fair value is determined using the discounted
cash flow method. The inputs to the valuation model generally include market interest rates, spreads and yields derived fromcomparable securities, prepayment, and LGD.
Assets purchased under reverse repurchase agreements and securities borrowed, and Obligations related to assets soldunder repurchase agreements and securities loaned
Valuation methods used for the long-term instruments are described in the Fair value of assets and liabilities measured on arecurring basis and classified using the fair value hierarchy section of this note. The carrying values of short-term instruments
generally approximate their fair values.
Loans – Retail
Retail loans include residential mortgages, personal and small business loans and credit cards. For residential mortgages, andpersonal and small business loans, we segregate the portfolio based on certain attributes such as product type, contractualinterest rate, term to maturity and credit scores, if applicable. Fair values of these loans are determined by the discounted cash
flow method using applicable inputs such as prevailing interest rates, contractual and posted client rates, client discounts, credit
spreads, prepayment rates and loan-to-value (LTV) ratios. Fair values of credit card receivables are also calculated based on a
discounted cash flow method with portfolio yields, write-offs and monthly payment rates as inputs. The carrying values of shortterm and variable rate loans generally approximate their fair values.
Loans – Wholesale
Where market prices are available, wholesale loans are valued based on market prices. Otherwise, fair value is determined by
the discounted cash flow method using the following inputs: market interest rates and market based spreads of assets withsimilar credit ratings and terms to maturity, LGD, expected default frequency implied from credit default swap prices, if available,
and relevant pricing information such as contractual rate, origination and maturity dates, redemption price, coupon payment
frequency and date convention.
Deposits
Deposits are comprised of demand, notice, and term deposits which include senior deposit notes we have issued to provide us
with long-term funding. Fair values of term deposits are determined by one of several valuation techniques: (i) for term deposits
and similar instruments, we segregate the portfolio based on term to maturity. Fair values of these instruments are determinedby the discounted cash flow method using inputs such as client rates for new sales of the corresponding terms; and (ii) for seniordeposit notes, we use actual traded prices, vendor prices or the discounted cash flow method using a market interest rate curveand our funding spreads as inputs. The carrying values of demand, notice, and short-term term deposits generally approximate
their fair values.
Other assets and Other liabilities
Other assets and Other liabilities include receivables and payables relating to certain commodities. Fair values of the commodity
receivables and payables are calculated by the discounted cash flow method using applicable inputs such as market interest
rates, counterparties’ credit spreads, our funding spreads, commodity forward prices and spot prices.
Subordinated debentures
Fair values of Subordinated debentures are based on market prices, dealer quotes or vendor prices when available. Where prices
cannot be observed, fair value is determined using the discounted cash flow method, with applicable inputs such as market
interest rates and credit spreads.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

173

Note 4

Securities

Carrying value of securities
As at October 31, 2023

Term to maturity (1)(Millions of Canadian dollars)

Trading (2)Debt issued or guaranteed by:
Canadian government
U.S. federal, state, municipal andagencies
Other OECD government
Mortgage-backed securities
Asset-backed securities
Corporate debt and other debt
Bankers’ acceptances
Other (3)Equities

5 years to
10 yearsOver
10 yearsWith nospecificmaturity$

2,932$ 6,915$

15,864
815
–
234

4,375
1,040
–
307

–
2,219

–
6,681

27,742

28,867

2,479
2,479
4.5%

Within3 months

3 months
to 1 year

1 year to
5 years$

9,867$ 17,244 $

8,687

15,507
566
–
452

8,136
1,117
–
151

143
1,207

–

$ 45,645

8,806
1,094
2
101

–
–
–
–

52,688
4,632
2
1,245

–
3,656

–
8,709

32,281

12,31025,627––63,324
63,324143
22,472
63,324
190,151

1,247
1,242
3.2%

1,726
1,707
2.6%

640
515
1.2%

517
316
3.4%

–
–
–

6,609
6,259
3.4%

469
469
4.9%

8
8
3.7%

1,159
1,158
2.8%

52
52
4.5%

1,708
1,061
4.4%

–
–
–

3,396
2,748
3.8%

846
856
7.4%

8,595
8,572
2.1%

33,04433,0502.7%

16,355
16,193
4.0%

16,486
14,624
3.6%–––

75,32673,295
3.2%

160
160
6.3%

1,009
1,009
4.0%

5,030
5,022
3.0%

1
1
4.6%

–
–
–

–
–
–

6,200
6,192
3.3%

–
–
–

–
–
–

32
31
7.5%

28
25
6.7%

2,702
2,645
6.8%

–
–
–

2,762
2,701
6.8%

–
–
–

–
–
–

16
17
6.4%

7,542
7,503
6.9%

1,194
1,186
7.0%

–
–
–

8,752
8,706
6.9%

4,928
4,928
3.9%

1,759
1,755
4.2%

18,79818,761
3.9%

2,248
2,243
5.4%

41
36
4.7%

–
–
–

27,77427,723
4.1%
493
842
131,312
128,466

Fair value through othercomprehensive income (2)Debt issued or guaranteed by:
Canadian government
FederalAmortized cost
Fair value
Yield (4)Provincial and municipal
Amortized cost
Fair value
Yield (4)U.S. federal, state, municipal andagencies
Amortized cost
Fair value
Yield (4)Other OECD government
Amortized cost
Fair value
Yield (4)Mortgage-backed securities
Amortized cost
Fair value
Yield (4)Asset-backed securities
Amortized cost
Fair value
Yield (4)Corporate debt and other debt
Amortized cost
Fair value
Yield (4)Equities
Cost
Fair value (5)Amortized cost
Fair value
Amortized cost (2)Debt issued or guaranteed by:
Canadian government
Yield (4)U.S. federal, state, municipal andagencies
Yield (4)Other OECD government
Yield (4)Asset-backed securities
Yield (4)Corporate debt and other debt
Yield (4)Amortized cost, net of allowance
Fair value
Total carrying value of securities

424
5.0%
375
2.0%
–
–
838
2.3%
2,634
2,627
$ 39,268

174

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

Total

8,882
8,892

12,618
12,58659,80559,746

26,866
26,532

22,64819,868

493
842
493
842

997
2.8%

1,931
3.0%

17,448
2.1%

6,468
2.0%

–
–

–
–

26,8442.2%

1,427
14,536
4.1%
3.3%
723
4,362
0.8%
2.9%
–
424
–
4.9%
1,443
11,256
2.9%
3.4%
5,524
48,026
5,447
46,258$ 46,977 $ 140,053

5,156
2.9%
66
1.1%
–
–
190
3.1%
11,88010,276$ 50,722

23,025
2.5%
–
–
1
1.4%
23
5.6%
23,04919,059$ 68,544

–
–
–
–
–
–
–
–
–
–
$ 64,166

44,568
2.9%
5,526
2.5%
425
4.9%
13,7503.3%
91,113
83,667$ 409,730

As at October 31, 2022

Term to maturity (1)Within3 months

3 months
to 1 year

1 year to
5 years

5 years to
10 yearsOver
10 yearsWith nospecificmaturity$

2,255$ 14,181

$

$

$

$

7,151
1,343
–
779

10,107
233
–
49

7,043
606
–
67

4,507
241
–
207

8,020
2,354
2
208

–
–
–
–

36,828
4,777
2
1,310

252
3,055

3
1,837

–
4,813

–
3,037

–
8,172

14,835
Fair value through other comprehensive
income (2)Debt issued or guaranteed by:
Canadian government
FederalAmortized cost
780
Fair value
778
2.3%
Yield (4)Provincial and municipal
Amortized cost
237
Fair value
237
2.0%
Yield (4)U.S. federal, state, municipal andagencies
Amortized cost
802
Fair value
802
4.9%
Yield (4)Other OECD government
Amortized cost
1,105
Fair value
1,105
2.4%
Yield (4)Mortgage-backed securities
Amortized cost–
Fair value––
Yield (4)Asset-backed securities
Amortized cost–
Fair value––
Yield (4)Corporate debt and other debt
Amortized cost
5,922
Fair value
5,919
3.2%
Yield (4)Equities
Cost
Fair value (5)Amortized cost
8,846
Fair value
8,841
Amortized cost (2)Debt issued or guaranteed by:
Canadian government929
2.4%
Yield (4)U.S. federal, state, municipal andagencies
161
4.4%
Yield (4)Other OECD government
235
1.3%
Yield (4)Asset-backed securities––
Yield (4)Corporate debt and other debt
574
0.8%
Yield (4)Amortized cost, net of allowance
1,899
Fair value
1,899
Total carrying value of securities$ 25,575

26,41019,436

10,69824,767––52,05952,059255
20,91452,059148,205

1,010
1,009
2.3%

1,024
1,012
2.8%

745
635
1.6%

522
347
3.1%

–
–
–

4,081
3,781
2.4%

215
216
2.7%

616
616
2.0%

56
56
3.8%

1,561
999
4.1%

–
–
–

2,685
2,124
3.0%

2,613
2,615
0.4%

13,586
13,554
1.9%

9,104
9,061
3.4%

19,92918,326
3.0%–––

46,03444,358
2.6%

642
642
1.2%

3,406
3,396
1.7%

1
1
4.4%

–
–
–

–
–
–

5,154
5,144
1.8%

–
–
–

–
–
–

41
37
4.5%

2,944
2,851
4.7%

–
–
–

2,985
2,888
4.7%

–
–
–

46
46
4.6%

6,331
6,172
5.3%

1,911
1,830
5.4%

–
–
–

8,288
8,048
5.3%

4,793
4,792
2.8%

12,42012,307
2.6%

2,666
2,656
3.1%

51
46
5.1%

–
–
–

25,852
25,7202.8%
551
828
95,63092,891(Millions of Canadian dollars)

Trading (2)Debt issued or guaranteed by:
Canadian government
U.S. federal, state, municipal andagencies
Other OECD government
Mortgage-backed securities
Asset-backed securities
Corporate debt and other debt
Bankers’ acceptances
Other (3)Equities

(1)
(2)
(3)
(4)
(5)

6,907

2,706

6,011

–

Total
$

32,060

9,273
9,274

31,09830,931

18,944
18,61826,91824,399

551
828
551
828

1,734
2.8%

16,655
2.0%

6,101
2.3%

–
–

–
–

25,419
2.1%

784
3.0%
1,574
1.3%
–
–
2,434
1.7%
6,526
6,455
$ 42,210

3,885
1.7%
3,645
1.9%
573
3.0%
7,574
2.6%
32,332
30,579$ 82,699

3,784
2.3%
64
1.3%
135
3.5%
741
2.4%
10,825
9,433$ 40,141

25,518
2.4%
–
–
3
1.5%
24
4.9%
25,54521,707$ 74,711

–
–
–
–
–
–
–
–
–
–
$ 52,887

34,132
2.3%
5,518
1.7%
711
3.1%
11,347
2.0%
77,12770,073$ 318,223

Actual maturities may differ from contractual maturities shown above as borrowers may have the right to extend or prepay obligations with or without penalties.
Trading securities and FVOCI securities are recorded at fair value. Amortized cost securities, included in Investment securities, are recorded at amortized cost andpresented net of allowance for credit losses.
Primarily composed of corporate debt, supra-national debt, and commercial paper.
The weighted average yield is derived using the contractual interest rate and the carrying value at the end of the year for the respective securities.
Certain equity securities that are not held-for-trading purposes are designated as FVOCI.
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

175

Note 4

Securities (continued)

Unrealized gains and losses on securities at FVOCI (1), (2)As at
October 31, 2023

(Millions of Canadian dollars)

Debt issued or guaranteed by:
Canadian government
FederalProvincial and municipal
U.S. federal, state, municipal andagencies
Other OECD government
Mortgage-backed securities
Asset-backed securities
CDO
Non-CDO securities
Corporate debt and other debt
Equities(1)(2)

October 31, 2022

Cost/
Gross
Gross
Amortized unrealized unrealized
cost
gains
losses$6,609 $
3,396

1 $
2

Fair value(351) $
(650)

6,259
2,748

Cost/
Gross
Gross
Amortized unrealized unrealized
cost
gains
losses$

4,081 $
2,685

1 $
6

(301) $
(567)

Fair
value

3,781
2,124

75,326
6,200
2,762

343
1
–

(2,374)(9)(61)

73,2956,192
2,701

46,034
5,154
2,985

343
7
1

(2,019)(17)(98)

44,358
5,144
2,888

8,308
444
27,774
493

3
2
44
357

(46)
(5)
(95)
(8)

8,265
441
27,723
842

7,741
547
25,852
551

3
–
51
284

(220)
(23)
(183)
(7)

7,524
524
25,720828$ 131,312 $753 $95,630 $696 $(3,599) $ 128,466$(3,435) $ 92,891

Excludes $91,113 million of held-to-collect securities as at October 31, 2023 that are carried at amortized cost, net of allowance for credit losses (October 31, 2022 –$77,127 million).
Gross unrealized gains and losses includes $(33) million of allowance for credit losses on debt securities at FVOCI as at October 31, 2023 (October 31, 2022 – $(19) million)
recognized in income and Other components of equity.

Allowance for credit losses on investment securities
The following tables reconcile the opening and closing allowance for debt securities at FVOCI and amortized cost by stage.
Reconciling items include the following:•Transfers between stages, which are presumed to occur before any corresponding remeasurement of the allowance.
•
Purchases, which reflect the allowance related to assets newly recognized during the period, including those assets thatwere derecognized following a modification of terms.
•
Sales and maturities, which reflect the allowance related to assets derecognized during the period without a credit loss
being incurred, including those assets that were derecognized following a modification of terms.
•
Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, includingchanges in forward-looking macroeconomic conditions; partial repayments; changes in the measurement following atransfer between stages; and unwinding of the time value discount due to the passage of time.
Allowance for credit losses – securities at FVOCI (1)For the year ended
October 31, 2023
Performing(Millions of Canadian dollars)Stage 1

Balance at beginning of period
Provision for credit losses
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Purchases
Sales and maturities
Changes in risk, parameters andexposures
Exchange rate and other$

Balance at end of period

$

(1)
(2)

176

October 31, 2022

ImpairedStage 2

3 $

1 $

1
–
–
7
(2)

Performing

Stage 3 (2)TotalStage 1

ImpairedStage 2(23) $(19) $

2 $

1

(1)
–
–
–
–

–
–
–
–
–

–
–
–
7
(2)

1
–
–
3
(1)

(5)
–

–
–

(17)
3

(22)
3

4 $

– $

(37) $(33) $

Stage 3 (2)

$

Total

(12) $

(9)

(1)
–
–
–
–

–
–
–
–
–

–
–
–
3
(1)

(2)
–

1
–

(10)
(1)

(11)
(1)

3 $

1

(23) $(19)$

Expected credit losses on debt securities at FVOCI are not separately recognized on the Consolidated Balance Sheets as the related securities are recorded at fair value.
The cumulative amount of credit losses recognized in income is presented in Other components of equity.
Reflects changes in the allowance for purchased credit impaired securities.

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Allowance for credit losses – securities at amortized cost
For the year ended
October 31, 2023
Performing(Millions of Canadian dollars)Stage 1

Balance at beginning of period
Provision for credit losses
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Purchases
Sales and maturities
Changes in risk, parameters andexposures
Exchange rate and other$

Balance at end of period$

8Stage 2$October 31, 2022

Impaired14

Performing

Stage 3

$

–

Total

$

Stage 122$

5ImpairedStage 2$

18

Stage 3

$

–

Total

$

23

–
–
–
10
(1)

–
–
–
–
–

–
–
–
–
–

–
–
–
10
(1)

–
–
–
11
(1)

–
–
–
–
–

–
–
–
–
–

–
–
–
11
(1)

(9)
–

–
1

–
–

(9)
1

(7)
–

(6)
2

–
–

(13)
2

8

$

15

$

–

$

23

$

8

$

14

$

–

$

22

Credit risk exposure by internal risk rating
The following table presents the fair value of debt securities at FVOCI and gross carrying amount of securities at amortized cost.
Risk ratings are based on internal ratings used in the measurement of expected credit losses, as at the reporting date, as outlinedin the internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
As at
October 31, 2023
Performing(Millions of Canadian dollars)Stage 1

Investment securities
Securities at FVOCI
Investment grade
Non-investment grade
Impaired$ 126,732
742–

October 31, 2022

Impaired

Performing

Impaired

Total

Stage 1

Stage 2

Stage 3 (1)

–
–
149

$ 126,733
742
149$ 91,177
680
–

$ 56
–
–

$

149

127,624842

91,857

56

Stage 2

Stage 3 (1)$$127,4741––
1

Items not subject to impairment (2)

–
–
150

$ 91,233
680
150

150

92,063828$ 128,466
Securities at amortized cost
Investment grade
Non-investment grade
Impaired$

Allowance for credit losses
$
(1)
(2)

89,947
990
–

$

–
199
–

90,9378199
1590,929

$ 184

$

–
–
–

$

–
–
$

–

$

Total

$ 92,891

89,947
1,189–$ 76,035
898
–

$

–
216
–

91,13623

76,9338216
1491,113$ 76,925

$ 202

$

$

–
–
–

$ 76,035
1,114
–

–
–

77,14922–$ 77,127

Reflects $149 million of purchased credit impaired securities (October 31, 2022 – $150 million).
Investment securities at FVOCI not subject to impairment represent equity securities designated as FVOCI.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

177

Note 5 Loans and allowance for credit losses
Loans by geography and portfolio net of allowance
As at October 31, 2023

UnitedStatesCanada(Millions of Canadian dollars)

Other
International

Total

Allowance forloan losses (1)Total netof allowance

Retail (2)Residential mortgages
Personal
Credit cards (3)Small business (4)Wholesale (2), (5)$ 397,605
79,70522,14013,681
121,762$

33,68315,751
624–
119,067

$

3,213
3,278
271
–
46,997$ 434,501
98,73423,035
13,681
287,826$(481) $
(1,145)(1,013)(180)(2,185)434,020
97,58922,022
13,501
285,641

Total loans$ 634,893$ 169,125$

53,759$ 857,777$(5,004) $852,773

277,863
128,967

5,054
247,881

3,173
84,633

286,090
461,481

Undrawn loan commitments – Retail
Undrawn loan commitments – Wholesale

(152)
(136)

As at October 31, 2022

Canada(Millions of Canadian dollars)

Retail (2)Residential mortgages
Personal
Credit cards (3)Small business (4)Wholesale (2), (5)Total loans
Undrawn loan commitments – Retail
Undrawn loan commitments – Wholesale
(1)
(2)
(3)
(4)
(5)

UnitedStatesOther
International

Total

$

383,797
79,422
19,77812,669108,916$

31,956
14,888558–
114,795

$

3,043
3,399
241
–
50,256$$604,582$

162,197$

56,939$258,115
118,928

4,630
225,113418,796
97,70920,577
12,669Allowance forloan losses (1)$273,967

2,212
81,194

823,718$

Total netof allowance(432) $
(856)
(849)
(181)

418,364
96,853
19,72812,488(1,435)272,532(3,753) $819,965

264,957
425,235

(243)
(135)

Excludes allowance for loans measured at FVOCI of $6 million (October 31, 2022 – $5 million).
Geographic information is based on residence of the borrower.
The credit cards business is managed as a single portfolio and includes both consumer and business cards.
Includes small business exposure managed on a pooled basis.
Includes small business exposure managed on an individual client basis.

Loans maturity and rate sensitivity
As at October 31, 2023

Maturity term (1)Under
1 year (2)(Millions of Canadian dollars)

1 to 5years

Rate sensitivity
Over 5
years

Total

Fixed Non-rateRate sensitive

Floating

Total

RetailWholesale$ 276,720 $ 249,210 $ 44,021 $ 569,951 $ 183,604 $ 378,656 $
236,126
39,35812,342287,826
53,655232,024

7,691 $ 569,951
2,147
287,826

Total loans
Allowance for loan losses$ 512,846 $ 288,568 $ 56,363 $ 857,777 $ 237,259 $ 610,680 $(5,004)

9,838 $ 857,777(5,004)

Total loans net of allowance for loan losses$ 852,773$ 852,773

As at October 31, 2022

Maturity term (1)Under 1year (2)(Millions of Canadian dollars)

1 to 5years

Rate sensitivity
Over 5
years

Total

Floating

Fixed
Rate

Non-ratesensitive

Total

RetailWholesale$277,302 $226,813226,793 $ 45,656 $ 549,751
35,802
11,352273,967$

199,414 $46,660342,087 $
225,123

Total loans
Allowance for loan losses$

504,115 $

262,595 $ 57,008 $ 823,718 $(3,753)

246,074 $567,210 $ 10,434 $ 823,718(3,753)

Total loans net of allowance for loan losses
(1)
(2)

178

$ 819,965

Generally, based on the earlier of contractual repricing or maturity date.
Includes variable rate loans that can be repriced at the clients’ discretion without penalty.

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

8,250 $ 549,751
2,184
273,967$ 819,965

Allowance for credit losses
For the year ended
October 31, 2023

(Millions of Canadian dollars)

RetailResidential mortgages
Personal
Credit cards
Small business
Wholesale
Customers’ liability under
acceptances

Balance at
beginningof period

$

432 $
74 $
1,043
593
893
636
194
43
1,574
1,145
45

5

$ 4,181 $ 2,496 $Presented as:
Allowance for loan losses
Other liabilities – Provisions
Customers’ liability under
acceptances
Other components of equity(1)

October 31, 2022

Provision
Exchangefor credit
Net
rate andlosses write-offs (1)otherBalanceat endof period(17) $
(8) $
481
(404)
(4)
1,228
(460)
–
1,069
(39)
(4)
194
(293)
(100)
2,326
–

–

Balance at Provision
Exchange
beginning for credit
Net
rate andof period
losses write-offs (1)
other

$

416 $
1,079
875
177
1,797

50

(1,213) $ (116) $ 5,348

75$ 4,419 $

27 $
211
348
31
(90)

(24) $
(248)
(332)
(23)
(136)

(30)

–

497 $

(763) $

Balanceat endof period

13 $ 432
1
1,043
2
893
9
194
3
1,574
–

45

28 $ 4,181$ 3,753378$ 5,004288$ 4,089241$ 3,753
378

45
5

50
6

75
14

45
5

Loans written-off are generally subject to continued collection efforts for a period of time following write-off. The contractual amount outstanding on loans written-off
during the year ended October 31, 2023 that are no longer subject to enforcement activity was $139 million (October 31, 2022 – $53 million).

The following table reconciles the opening and closing allowance for each major product of loans and commitments asdetermined by our modelled, scenario-weighted allowance and the application of expert credit judgment as applicable.
Reconciling items include the following:•
Model changes, which generally comprise the impact of significant changes to the quantitative models used to estimate
expected credit losses and any staging impacts that may arise.
•Transfers between stages, which are presumed to occur before any corresponding remeasurements of the allowance.
•
Originations, which reflect the allowance related to assets newly recognized during the period, including those assets thatwere derecognized following a modification of terms.
•
Maturities, which reflect the allowance related to assets derecognized during the period without a credit loss being incurred,
including those assets that were derecognized following a modification of terms.
•
Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, includingchanges in forward-looking macroeconomic conditions; partial repayments and additional draws on existing facilities;changes in the measurement following a transfer between stages; and unwinding of the time value discount due to thepassage of time in Stage 1 and Stage 2.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

179

Note 5 Loans and allowance for credit losses (continued)
Allowance for credit losses – Retail and wholesale loans
For the year ended
October 31, 2023
Performing(Millions of Canadian dollars)

Residential mortgages
Balance at beginning of period
Provision for credit losses
Model changes
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Originations
Maturities
Changes in risk, parameters andexposures
Write-offs
Recoveries
Exchange rate and other
Balance at end of period
Personal
Balance at beginning of period
Provision for credit losses
Model changes
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Originations
Maturities
Changes in risk, parameters andexposures
Write-offs
Recoveries
Exchange rate and other
Balance at end of period
Credit cards
Balance at beginning of period
Provision for credit losses
Model changes
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Originations
Maturities
Changes in risk, parameters andexposures
Write-offs
Recoveries
Exchange rate and other
Balance at end of period
Small business
Balance at beginning of period
Provision for credit losses
Model changes
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Originations
Maturities
Changes in risk, parameters andexposures
Write-offs
Recoveries
Exchange rate and other
Balance at end of period
Wholesale
Balance at beginning of period
Provision for credit losses
Model changes
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Originations
Maturities
Changes in risk, parameters andexposures
Write-offs
Recoveries
Exchange rate and other
Balance at end of period
180

Stage 1$

235

Stage 2$October 31, 2022

Impaired65

Performing

Stage 3

$

132

Total

$

432

Stage 1$

186

ImpairedStage 2$

92

Stage 3

$

138

Total

$

416

–
95
(26)
(2)
89
(17)

–
(95)
38
(13)
–
(9)

–
–
(12)
15
–
–

–
–
–
–
89
(26)

(21)
113
(14)
(2)
159
(23)

10
(98)
23
(25)
–
(9)

–
(15)
(9)
27
–
–

(11)
–
–
–
159
(32)

(152)
–
–
1

103
–
–
1

60
(30)
13
(10)

11
(30)
13
(8)

(167)
–
–
4

68
–
–
4

10
(38)
14
5

(89)
(38)
14
13

$

223

$

90

$

168

$

481

$

235

$

65

$

132

$

432

$

285

$

661

$

97

$

1,043

$

422

$

569

$

88

$

1,079

–
696
(88)
(1)
103
(45)

–
(695)
90
(57)
–
(112)

–
(1)
(2)
58
–
–

–
–
–
–
103
(157)

(3)
609
(120)
(2)
106
(70)

–
(607)
121
(47)
–
(99)

–
(2)
(1)
49
–
–

(3)
–
–
–
106
(169)

(671)
–
–
1

906
–
–
–

412
(518)
114
(5)

647
(518)
114
(4)

(660)
–
–
3

724
–
–
–

213
(374)
126
(2)

277
(374)
126
1

$

280

$

793

$

155

$

1,228

$

285

$

661

$

97

$

1,043

$

177

$

716

$

–

$

893

$

233

$

642

$

–

$

875

–
539
(101)
(2)
13
(6)

–
(539)
101
(394)
–
(33)

–
–
–
396
–
–

–
–
–
–
13
(39)

(2)
495
(95)
(2)
10
(5)

–
(495)
95
(325)
–
(29)

–
–
–
327
–
–

(2)
–
–
–
10
(34)

(417)
–
–
–

1,015
–
–
–

64
(650)
190
–

662
(650)
190
–

(458)
–
–
1

826
–
–
2

6
(503)
171
(1)

374
(503)
171
2

$

203

$

866

$

–

$

1,069

$

177

$

716

$

–

$

893

$

73

$

73

$

48

$

194

$

88

$

55

$

34

$

177

–
39
(14)
(1)
36
(18)

–
(39)
14
(10)
–
(21)

–
–
–
11
–
–

–
–
–
–
36
(39)

–
27
(17)
(1)
32
(22)

–
(27)
17
(4)
–
(24)

–
–
–
5
–
–

–
–
–
–
32
(46)

(48)
–
–
3

44
–
–
5

50
(50)
11
(12)

46
(50)
11
(4)

(43)
–
–
9

50
–
–
6

38
(32)
9
(6)

45
(32)
9
9

$

70

$

66

$

58

$

194

$

73

$

73

$

48

$

194

$

597

$

585

$

392

$

1,574

$

566

$

794

$

437

$

1,797

$

Royal Bank of Canada: Annual Report 2023

–
216
(87)
(10)
651
(448)

–
(215)
89
(60)
–
(270)

–
(1)
(2)
70
–
–

–
–
–
–
651
(718)

(14)
415
(78)
(3)
641
(439)

(3)
(411)
80
(62)
–
(345)

–
(4)
(2)
65
–
–

(17)
–
–
–
641
(784)

(153)
–
–
8

647
–
–
9

718
(324)
31
(117)

1,212
(324)
31
(100)

(504)
–
–
13

503
–
–
29

71
(202)
66
(39)

70
(202)
66
3

774

$

785

$

767

Consolidated Financial Statements

$

2,326

$

597

$

585

$

392

$

1,574

Key inputs and assumptions
The measurement of expected credit losses is a complex calculation that involves a significant number of interrelated inputs andassumptions and the allowance is not sensitive to any one single factor. The key drivers of changes in expected credit losses
include the following:• Changes in the credit quality of the borrower or instrument, primarily reflected in changes in internal risk ratings;• Changes in forward-looking macroeconomic conditions, specifically the macroeconomic variables to which our models arecalibrated, which are those most closely correlated with credit losses in the relevant portfolio;• Changes in scenario design and the weight assigned to each scenario; and• Transfers between stages, which can be triggered by changes to any of the above inputs.
To reflect relevant risk factors not captured in our modelled results, we applied expert credit judgment in determining themeasurement of our weighted allowance for credit losses. The measurement of expected credit losses, including scenario design
and weightings, determining significant increases in credit risk since origination and application of expert credit judgment, isoverseen by a senior management committee that includes representation from Finance, Group Risk Management andEconomics.

Internal risk ratings
Internal risk ratings are assigned according to the risk management framework outlined under the headings Wholesale credit risk
and Retail credit risk of the Credit risk section of Management’s Discussion and Analysis. Changes in internal risk ratings areprimarily reflected in the PD parameters, which are estimated based on our historical loss experience at the relevant risk
segment or risk rating level, adjusted for forward-looking information.
Scenario design and weightings
Our estimation of expected credit losses in Stage 1 and Stage 2 considers five distinct future macroeconomic scenarios.
Scenarios are designed to capture a wide range of possible outcomes and are weighted according to our expectation of therelative likelihood of the range of outcomes that each scenario represents at the reporting date. We weight each scenario to take
into account historical frequency, current trends, and forward-looking conditions which will change over time. Scenario
weightings take into consideration the extent to which the base case scenario includes both favourable and unfavourable
economic expectations, and upside and downside risks to the base scenario materializing in the future. The base case scenario isbased on forecasts of the expected rate, value or yield for each relevant macroeconomic variable. The upside and downside
scenarios are set by adjusting our base projections to construct reasonably possible scenarios and weightings that are more
optimistic and pessimistic, respectively, than the base case. Two additional downside scenarios capture the non-linear nature ofpotential credit losses across our portfolios. When the economy is at or near equilibrium, the severity of the downside scenario
generally reflects an adverse event typical for a business cycle and both the non-linear downside scenarios reflect an outcomethat is materially more adverse than the downside scenario.
The impact of each of our five scenarios varies across our portfolios given the portfolios have different sensitivities tomovements in each macroeconomic variable. Our scenario weights are unchanged relative to October 31, 2022 to reflect
continued uncertainty and downside risks that may drive recession outcomes that are more severe than contemplated in ourbase scenario.
The impact of weighting these multiple scenarios increased our ACL on performing loans, relative to our base scenario, by$868 million at October 31, 2023 (October 31, 2022 – $738 million).

Forward looking macroeconomic variables
The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on themacroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in therelevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in our models for a five year horizon, reverting to long-run averages generally within the
2 to 5 year period. Depending on their usage in the models, macroeconomic variables are projected at a country, province/stateor more granular level. These include one or more of the variables described below, which differ by portfolio and region.
Our allowance for credit losses reflects our economic outlook as at October 31, 2023. Subsequent changes to this forecast andrelated estimates will be reflected in our allowance for credit losses in future periods.
Our base scenario reflects rising unemployment rates, high central bank policy interest rates and elevated but declining
inflation, which result in mild recessions in Canada in the second half of calendar 2023 and the U.S. in the first half of calendar
2024. Expectations are that there will be no further increases in central bank interest rates in Canada and the U.S. Our basescenario also reflects commercial real estate price declines in the near term.
Downside scenarios, including two additional and more severe downside scenarios designed for the energy and real estate
sectors, reflect the possibility of a more severe macroeconomic shock beginning in calendar Q1 2024 relative to our basescenario. In these scenarios, conditions are expected to deteriorate from calendar Q4 2023 levels for up to 18 months, followed bya recovery for the remainder of the period. These scenarios assume monetary policy responses that return the economy to along-run, sustainable growth rate within the forecast period. The possibility of a deeper recession and a more prolonged recovery
as compared to our base scenario, including further monetary policy responses to elevated inflation rates which may increasecredit risk, is reflected in our general downside scenario.
The upside scenario reflects slightly stronger economic growth than the base scenario, without prompting a further
offsetting monetary policy response as compared to our base scenario, followed by a return to a long-run sustainable growthrate within the forecast period.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

181

Note 5 Loans and allowance for credit losses (continued)
The following provides additional detail about our calendar quarter forecasts for certain key macroeconomic variables used in
the models to estimate ACL:

Unemployment – In our base forecast, calendar Q4 2023 unemployment rates are expected to rise to 5.9% in Canada and4.0% in the U.S., peaking in Q2 2024 at 6.6% in Canada and in Q3 2024 at 4.7% in the U.S., then reverting to long run
equilibrium levels by calendar Q2 and Q3 2026, respectively.

•

Canada Unemployment Rate (1)10

U.S. Unemployment Rate (1)

%

%

9

8

7

7

6

6

5

5

4

4

3

Q

Q

Range of alternative scenarios (October 31, 2023)

42
Q 022
12
Q 023
22
Q 023
32
Q 02
4- 3
2
Q 023
12
Q 024
22
Q 024
320
Q 2
4- 4
2
Q 024
12
Q 025
22
Q 025
32
Q 02
4- 5
2
Q 025
12
Q 026
22
Q 026
32
Q 02
4- 6
20
Q 26
12
Q 027
22
Q 027
32
Q 02
4- 7
2
Q 027
12
Q 028
22
Q 028
320
28

8

42
Q 022
12
Q 023
22
Q 023
32
Q 02
4- 3
2
Q 023
12
Q 024
22
Q 024
32
Q 02
4- 4
2
Q 024
12
Q 025
22
Q 025
32
Q 02
4- 5
2
Q 025
12
Q 026
22
Q 026
32
Q 02
4- 6
2
Q 026
12
Q 027
22
Q 027
32
Q 02
4- 7
20
Q 2
1- 7
2
Q 028
22
Q 028
320
28

9

Range of alternative scenarios (October 31, 2023)

Base scenario (October 31, 2023)

Base scenario (October 31, 2023)

Base scenario (October 31, 2022)

Base scenario (October 31, 2022)(1) Represents the average quarterly unemployment level over the calendar quarters presented.

(1) Represents the average quarterly unemployment level over the calendar quarters presented.

Gross Domestic Product (GDP) – In our base forecast, we expect Canadian GDP to continuously grow in calendar Q1 2024
and thereafter, while U.S. GDP growth is expected to experience a mild recession during the first half of calendar 2024
followed by continuous growth. GDP in calendar Q4 2024 is expected to be 1.6% and 0.1% above Q4 2023 levels in Canada andthe U.S., respectively.

•

Canada Real GDP (1)2.5

U.S. Real GDP (1)Trillions of Canadian dollars

Trillions of U.S. dollars

24.0
23.0

2.4

22.0
2.3
21.0
2.2
20.0
2.1

19.0

Base scenario (October 31, 2023)

Base scenario (October 31, 2022)

22

1-

20
4-

Q

Q

Q

Range of alternative scenarios (October 31, 2023)

2
Q 023
22
Q 023
32
Q 02
4- 3
2
Q 023
12
Q 024
22
Q 024
32
Q 02
4- 4
2
Q 024
12
Q 025
22
Q 025
32
Q 02
4- 5
2
Q 025
12
Q 026
22
Q 026
32
Q 02
4- 6
2
Q 026
120
Q 27
22
Q 027
32
Q 02
4- 7
2
Q 027
120
Q 28
22
Q 028
320
28

18.0

42
Q 022
120
Q 23
22
Q 023
32
Q 02
4- 3
2
Q 023
12
Q 024
22
Q 024
32
Q 02
4- 4
2
Q 024
12
Q 025
220
Q 25
32
Q 02
4- 5
20
Q 25
12
Q 026
22
Q 026
32
Q 02
4- 6
2
Q 026
12
Q 027
22
Q 027
32
Q 02
4- 7
2
Q 027
12
Q 028
22
Q 028
320
28

2.0

Range of alternative scenarios (October 31, 2023)

Base scenario (October 31, 2023)

Base scenario (October 31, 2022)(1) Represents the seasonally adjusted annual rate indexed to 2012 Canadian dollars over the calendar
quarters presented.

(1) Represents the seasonally adjusted annual rate indexed to 2012 U.S. dollars over the calendar
quarters presented.

•

Oil price (West Texas Intermediate in US$) – In our base forecast, we expect oil prices to average $81 per barrel over the
next 12 months from calendar Q4 2023 and $67 per barrel in the following 2 to 5 years. The range of average prices in ouralternative downside and upside scenarios is $28 to $103 per barrel for the next 12 months and $43 to $74 per barrel for thefollowing 2 to 5 years. As at October 31, 2022, our base forecast included an average price of $88 per barrel for the next
12 months and $72 per barrel for the following 2 to 5 years.

•

Canadian housing price index – In our base forecast, we expect housing prices to increase by 1.6% over the next 12 months
from calendar Q4 2023, with a compound annual growth rate of 5.0% for the following 2 to 5 years. The range of annual
housing price growth (contraction) in our alternative real estate downside and upside scenarios is (30.0)% to 10.9% over the
next 12 months and 4.2% to 9.6% for the following 2 to 5 years. As at October 31, 2022 our base forecast included housing
price contraction of (1.0)% from calendar Q4 2022 for the next 12 months and housing price growth of 5.2% for the following 2
to 5 years.

182

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

The primary variables driving credit losses in our retail portfolios are Canadian unemployment rates, Canadian housing priceindex and Canadian GDP. The Canadian overnight interest rate also impacts our retail portfolios. Our wholesale portfolios areaffected by all of the variables discussed above; however, the specific variables differ by sector. Other variables also impact ourwholesale portfolios including, but not limited to, Canadian and U.S. 10 year BBB corporate bond credit spreads, Canadian and
U.S. 10 year government bond yields, U.S. 10 year BBB corporate bond yield, Canadian consumer confidence index, Canadian and
U.S. commercial real estate price indices, U.S. housing price index, and natural gas prices (Henry Hub).
Increases in the following macroeconomic variables will generally correlate with higher expected credit losses: Canadianand U.S. unemployment rates, Canadian overnight interest rates, Canadian and U.S. 10 year BBB corporate bond credit spreads,
Canadian and U.S. 10 year government bond yields, and U.S. 10 year BBB corporate bond yield.
Increases in the following macroeconomic variables will generally correlate with lower expected credit losses: Canadian and
U.S. housing price indices, Canadian and U.S. GDP, Canadian consumer confidence index, Canadian and U.S. commercial realestate price indices, and oil and natural gas prices.

Transfers between stages
Transfers between Stage 1 and Stage 2 are based on the assessment of significant increases in credit risk relative to initialrecognition, as described in Note 2. The impact of moving from 12 months expected credit losses to lifetime expected credit
losses, or vice versa, varies by product and is dependent on the expected remaining life at the date of the transfer. Stagetransfers may result in significant fluctuations in expected credit losses.
The following table illustrates the impact of staging on our ACL by comparing our allowance if all performing loans were inStage 1 to the actual ACL recorded on these assets.
As at
October 31, 2023
(Millions of Canadian dollars)

Impact ofstagingStage 1 and 2
ACL

ACL – All performing
loans in Stage 1

Impact ofstagingStage 1 and 2
ACL$ 2,893$ 1,257$ 4,150$ 2,373$ 1,094$ 3,467

Performing loans (1)(1)

October 31, 2022

ACL – All performing
loans in Stage 1

Represents loans and commitments in Stage 1 and Stage 2.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

183

Note 5 Loans and allowance for credit losses (continued)
Credit risk exposure by internal risk rating
The following table presents the gross carrying amount of loans measured at amortized cost, and the full contractual amount of
undrawn loan commitments subject to the impairment requirements of IFRS 9. Risk ratings are based on internal ratings used in
the measurement of expected credit losses as at the reporting date, as outlined in the internal ratings maps for Wholesale andRetail facilities in the Credit risk section of Management’s Discussion and Analysis.
As at
October 31, 2023
(Millions of Canadian dollars)

RetailLoans outstanding – Residential
mortgages
Low riskMedium risk
High risk
Not rated (2)ImpairedStage 1

$ 349,001 $19,126
1,582
54,247–423,956

Stage 2October 31, 2022

Stage 3 (1)Total

1,630 $
1,610
4,927
1,220
–

– $ 350,631–
20,736–
6,509–
55,467
682
682

9,387

682

Loans outstanding – Personal
Low riskMedium risk
High risk
Not rated (2)Impaired$ 340,716 $
15,035
1,188
51,915–434,025

Items not subject to impairment (3)TotalStage 1

408,854

Stage 2

Stage 3 (1)Total

2,573 $
1,932
3,125
1,304
–

– $ 343,289–
16,967–
4,313–
53,219
560
560

8,934

560

418,348476

448$ 434,501$ 418,796$

75,572 $
5,587
477
9,982
–

1,676 $
2,915
2,088
157
–

– $
–
–
–
280

77,248
8,502
2,565
10,139280$

73,339 $
5,482
836
9,733
–

2,575 $
3,780
1,660
104
–

– $
–
–
–
200

75,914
9,262
2,496
9,837
200

$

91,618 $

6,836 $

280 $

98,734$89,390 $8,119 $

200 $

97,709$16,331 $
1,771
41
856

135 $
2,132
1,734
35

– $
–
–
–

16,466
3,903
1,775
891

$

15,088 $
1,418
39
751

83 $
1,911
1,255
32

– $
–
–
–

15,171
3,329
1,294
783

$

18,999 $4,036 $

– $23,035$

17,296 $3,281 $

– $20,577$

8,641 $
2,238
99
11
–

920 $
936
592
–
–

– $
–
–
–
244

9,561
3,174
691
11
244

$

8,571 $
1,512
102
3
–

838 $
1,130
375
–
–

– $
–
–
–
138

9,409
2,642
477
3
138

Total

$

10,989 $2,448 $

244 $

13,681$

10,188 $2,343 $

138 $

12,669Undrawn loan commitments – RetailLow riskMedium risk
High risk
Not rated (2)$ 266,209 $
10,759
956
6,686

610 $
298
434
138

– $ 266,819–
11,057
–
1,390
–
6,824

$ 247,620 $
9,021
876
5,668

1,041 $
246
367
118

– $ 248,661
–
9,267
–
1,243
–
5,786

Total

$ 284,610 $

1,480 $

– $ 286,090$ 263,185 $

1,772 $

– $ 264,957

Total
Loans outstanding – Credit cards
Low riskMedium risk
High risk
Not rated (2)Total
Loans outstanding – Small business
Low riskMedium risk
High risk
Not rated (2)Impaired

Wholesale – Loans outstanding
Investment grade
Non-investment grade
Not rated (2)Impaired$

89,037 $416 $– $ 89,453
156,211
19,210–175,421
10,968238–
11,206
–
–
2,498
2,498

Items not subject to impairment (3)
Total

$

88,513 $202 $– $ 88,715
145,908
15,758–
161,666
11,789360–
12,149
–
–
1,301
1,301

9,248

10,136$ 287,826$ 273,967

Undrawn loan commitments –Wholesale
Investment grade
Non-investment grade
Not rated (2)$ 312,178 $186 $130,994
13,9474,176–– $ 312,364–
144,941–
4,176$ 284,481 $179 $126,225
10,6573,692
1– $ 284,660–
136,882
–
3,693

Total

$ 447,348 $ 14,133 $– $ 461,481$ 414,398 $ 10,837 $– $ 425,235

(1)
(2)
(3)

184

As at October 31, 2023, 88% of credit-impaired loans were either fully or partially collateralized (October 31, 2022 – 88%). For details on the types of collateral held against
credit-impaired assets and our policies on collateral, refer to the Credit risk mitigation section of Management’s Discussion and Analysis.
In certain cases where an internal risk rating is not assigned, we use other approved credit risk assessments or rating methodologies, policies and tools to manage ourcredit risk.
Items not subject to impairment are loans held at FVTPL.

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Loans past due but not impaired (1), (2)As at
October 31, 2023

(Millions of Canadian dollars)

RetailWholesale(1)(2)

90 days
30 to 89 days and greater

October 31, 2022

Total

90 days
30 to 89 days and greater

Total

$

1,840 $
1,823

208 $ 2,048
49
1,872

$

1,328 $
1,279

168 $ 1,496
2
1,281

$

3,663 $

257 $ 3,920$

2,607 $

170 $ 2,777

Excludes loans less than 30 days past due as they are not generally representative of the borrowers’ ability to meet their payment obligations.
Amounts presented may include loans past due as a result of administrative processes, such as mortgage loans on which payments are restrained pending payout due tosale or refinancing. Past due loans arising from administrative processes are not representative of the borrowers’ ability to meet their payment obligations.

Note 6 Significant acquisitions and disposition
Acquisitions
HSBC Bank Canada
On November 29, 2022, we entered into an agreement to acquire 100% of the common shares of HSBC Bank Canada (HSBC
Canada) for an all-cash purchase price of $13.5 billion. HSBC Canada is a premier Canadian personal and commercial bankfocused on globally connected clients. We will also purchase all of the existing preferred shares and subordinated debt of HSBC
Canada held directly or indirectly by HSBC Holdings plc at par value ($2.1 billion as of September 30, 2023).
The agreement includes a locked box mechanism under which HSBC Canada’s earnings from June 30, 2022 to the closing dateaccrue to RBC and will be reflected in the acquired net assets on closing. Relatedly, we will pay an additional amount that
accrues from August 30, 2023 to the closing date, which is calculated based on the all-cash purchase price for the commonshares of HSBC Canada and the Canadian Overnight Repo Rate Average.
The transaction is expected to close in the first calendar quarter of 2024 and is subject to the satisfaction of customary
closing conditions, including regulatory approvals. The results of the acquired business will be consolidated from the date of close.

Wealth Management
On September 27, 2022, we completed the acquisition of 100% of the issued share capital of Brewin Dolphin Holdings PLC(RBC Brewin Dolphin) via our subsidiary, RBC Wealth Management (Jersey) Holdings Limited. RBC Brewin Dolphin provides
discretionary wealth management services in the U.K., Ireland and the Channel Islands. RBC Brewin Dolphin’s business gives us aplatform to significantly transform our wealth management business in the U.K., Ireland and the Channel Islands, and provides us
with the opportunity to position the combined businesses as a premier integrated wealth management provider to private andinstitutional clients.
Total consideration of £1,591 million ($2,341 million) as of the date of close consisted of £1,564 million ($2,302 million) in cash, aswell as amounts related to share based compensation. Our purchase price allocation assigned $3,279 million to assets and $938
million to liabilities, including customer relationship intangible assets of $1,292 million and goodwill of $913 million, which is allocatedto our International Wealth Management and Global Asset Management CGUs and is not deductible for tax purposes. Goodwill
reflects the expected synergies from the combined businesses and the expected growth of the Wealth Management segment.
The results of the acquisition have been consolidated from the date of close and included in our Wealth Management
segment.
Disposition
Wealth Management
On July 3, 2023, we completed the previously announced sale of the European asset servicing activities of RBC Investor Services®
and its associated Malaysian centre of excellence to CACEIS, the asset servicing banking group of Crédit Agricole S.A. and Banco
Santander, S.A. As a result of the transaction, we recorded a pre-tax gain on disposal of $69 million in Non-Interest income within
the Wealth Management segment ($77 million after-tax). The completion of the sale of the business of the U.K. branch of RBC
Investor Services Trust and the RBC Investor Services business in Jersey remains subject to customary closing conditions,
including regulatory approvals. The disposal group consists of $2.6 billion of assets, primarily consisting of cash and due frombanks, and $2.6 billion of liabilities, primarily consisting of deposits, and remains classified as held-for-sale, presented in Other
assets and Other liabilities, respectively.
Note 7 Derecognition of financial assets
We enter into transactions in which we transfer financial assets such as loans or securities to structured entities or other third
parties. The majority of assets transferred under repurchase agreements, securities lending agreements, and in our Canadianresidential mortgage securitization transactions do not qualify for derecognition as we continue to be exposed to substantiallyall of the risks and rewards of the transferred assets, such as prepayment, credit, price, interest rate and foreign exchange risks.
Transferred financial assets not derecognized
Securitization of Canadian residential mortgage loans
We periodically securitize insured Canadian residential mortgage loans through the creation of MBS pools under the National
Housing Act MBS (NHA MBS) program. All loans securitized under the NHA MBS program are required to be insured by the
Canadian Mortgage and Housing Corporation (CMHC) or a third-party insurer. We require the borrower to pay for mortgage
insurance when the loan amount is greater than 80% of the original appraised value of the property (LTV ratio). For residential
mortgage loans securitized under this program with LTV ratios less than 80%, we are required to insure the mortgages at our own
expense. Under the NHA MBS program, we are responsible for making all payments due on our issued MBS, regardless of whether
we collect the necessary funds from the mortgagor or the insurer. When a borrower defaults on a mortgage, we submit a claim to
the insurer if the amount recovered from the collection or foreclosure process is lower than the sum of the principal balance,
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

185

Note 7 Derecognition of financial assets (continued)
accrued interest and collection costs on the outstanding loan. The insurance claim process is managed by the insurance provider
in accordance with the insurer’s policies and covers the entire unpaid loan balance plus generally up to 12 months of interest,
selling costs and other eligible expenses. If an insurance claim is denied, a loss is recognized in Provision for credit losses in our
Consolidated Statements of Income. The amount recorded as a loss is not significant to our Consolidated Financial Statements
and no significant losses were incurred due to legal action arising from mortgage defaults during 2023 and 2022.
We sell the NHA MBS pools primarily to Canada Housing Trust, a government-sponsored structured entity under the Canada
Mortgage Bond (CMB) program. The entity periodically issues CMBs, which are guaranteed by the government, and sells them tothird-party investors. Proceeds of the CMB issuances are used by the entity to purchase the NHA MBS pools from eligible NHA
MBS issuers who participate in the issuance of a particular CMB series. Our continuing involvement includes servicing theunderlying residential mortgage loans we have securitized, either ourselves or through a third-party servicer. We also act ascounterparty in interest rate swap agreements where we pay the entity the interest due to CMB investors and receive the intereston the underlying MBS and reinvested assets. As part of the swaps, we are also required to maintain a principal reinvestment
account for principal payments received on the underlying mortgage loans to meet the repayment obligation upon maturity of
the CMB. We reinvest the collected principal payments in permitted investments as outlined in the swap agreements.
We have determined that certain of the NHA MBS program loans transferred to the entity do not qualify for derecognition as
we have not transferred substantially all of the risks and rewards of ownership. As a result, these transferred MBS continue to beclassified as residential mortgage loans and recognized on our Consolidated Balance Sheets. The cash received for thesetransferred MBS is treated as a secured borrowing and a corresponding liability is recorded in Deposits – Business andgovernment on our Consolidated Balance Sheets.

Securities sold under repurchase agreements and securities loaned
We also enter into transactions such as repurchase agreements and securities lending agreements where we transfer assets
under agreements to repurchase them at a future date and retain substantially all of the risks and rewards associated with theassets. These transferred assets remain on our Consolidated Balance Sheets and are accounted for as collateralized borrowing
transactions.
The following table provides information on the carrying amount and fair value of the transferred assets that did not qualify for
derecognition, and their associated liabilities.
As at
October 31, 2023

(Millions of Canadian dollars)

Carrying amount of transferredassets that do not qualify for
derecognition
Carrying amount of associatedliabilities$ 28,312$ 26,472

Fair value of net position

$

(2)
(3)

313,558$ 32,812

363,245

32,177$ 31,174

313,558$

21,680

Canadian
Securities
residential
sold undermortgage
repurchase Securities
loans (1), (2) agreements (3) loaned (3)$ 313,558 $ 21,680 $ 361,710

26,780
(308)

Total

$ 313,558 $ 21,680 $ 363,550

28,007

Fair value of transferred assets
Fair value of associatedliabilities(1)

October 31, 2022

Securities
Canadiansold underresidential
repurchase Securities
mortgageloans (1), (2) agreements (3) loaned (3)21,680– $– $362,018(308)$ 258,615 $ 15,332 $ 306,759
258,615274

15,332306,124$ 258,615 $ 15,332 $ 305,121

30,900$

Total

258,615$– $

15,332

304,847– $274

Includes Canadian residential mortgage loans transferred primarily to Canada Housing Trust at the initial securitization and other permitted investments used forfunding requirements after the initial securitization.
CMB investors have legal recourse only to the transferred assets, and do not have recourse to our general assets.
Does not include over-collateralization of assets pledged.

Note 8 Structured entities
In the normal course of business, we engage in a variety of financial transactions with structured entities to support our
financing and investing needs as well as those of our clients. A structured entity is an entity in which voting or similar rights are
not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined
objective with restrictions around their ongoing activities. We consolidate a structured entity when we control the entity inaccordance with our accounting policy as described in Note 2. In other cases, we may sponsor or have an interest in such anentity but may not consolidate it.
Consolidated structured entities
We consolidate the following structured entities, whose assets and liabilities are recorded on our Consolidated Balance Sheets.
Third-party investors in these structured entities generally have recourse only to the assets of the related entity and do not haverecourse to our general assets unless we breach our contractual obligations to those entities. In the ordinary course of business,
the assets of each consolidated structured entity can generally only be used to settle the obligations of that entity.

Multi-seller conduits
We generally do not maintain ownership in the multi-seller conduits that we administer and generally do not have rights to, or
control of, their assets. However, we issue asset-backed commercial paper (ABCP) through a multi-seller conduit that does nothave an expected loss investor with substantive power to direct the significant operating activities of the conduit. This conduit is186

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

consolidated because we have exposure to variability of returns from performance in the multi-seller arrangements throughproviding transaction-specific and program-wide liquidity, credit and loan facilities to the conduit and have decision-making
power over the relevant activities. As of October 31, 2023, $1,316 million of financial assets held by the conduit were included in
Loans (October 31, 2022 – $1,826 million) and $1,194 million of ABCP issued by the conduit was included in Deposits(October 31, 2022 – $1,284 million) on our Consolidated Balance Sheets.

Credit card securitization vehicle
We securitize a portion of our credit card receivables through a structured entity on a revolving basis. The entity purchases
co-ownership interests in a pool of credit card receivables and issues senior and subordinated term notes collateralized by thatco-ownership interest in the underlying pool of credit card receivables. Investors who purchase the term notes have recourse
only to that co-ownership interest in the underlying pool of credit card receivables.
We continue to service the credit card receivables and perform an administrative role for the entity. We also retain risk inthe underlying pool of credit card receivables through our retained interest in the transferred assets, the cash reserve balance
we fund from time to time, and also through certain subordinated notes which we retain. Additionally, we may own some seniornotes as investments or for market-making activities and we act as counterparty to interest rate and cross currency swap
agreements which hedge the entity’s interest rate and currency risk exposure.
We consolidate the structured entity because we have decision-making power over the timing and size of future issuancesand other relevant activities which were predetermined by us at inception. We also obtain significant funding benefits and are
exposed to variability from the performance of the underlying credit card receivables through our retained interest. As at
October 31, 2023, $7 billion of notes issued by our credit card securitization vehicle were included in Deposits on our Consolidated
Balance Sheets (October 31, 2022 – $6 billion).
Collateralized commercial paper vehicle
We established a funding vehicle that provides loans to us and finances those loans by issuing commercial paper to third-party
investors. The structured entity’s commercial paper carries an equivalent credit rating to RBC because we are obligated toadvance funds to the entity in the event there are insufficient funds from other sources to settle maturing commercial paper. We
pledge collateral to secure the loans and are exposed to the market and credit risks of the pledged securities.
We consolidate the structured entity because we have decision-making power over the relevant activities, are the soleborrower from the structure, and are exposed to a majority of the residual ownership risks through the credit support provided.
As at October 31, 2023, $17 billion of commercial paper issued by the vehicle was included in Deposits on our Consolidated
Balance Sheets (October 31, 2022 – $14 billion).
Covered bonds
We periodically transfer mortgages to RBC Covered Bond Guarantor Limited Partnership (the Guarantor LP) to support funding
activities and asset coverage requirements under our covered bonds program. The Guarantor LP was created to guarantee
interest and principal payments under the covered bond program. The covered bonds guaranteed by the Guarantor LP are direct,
unsecured and unconditional obligations of RBC; therefore, investors have a claim against the Bank which will continue if thecovered bonds are not paid by the Bank and the mortgage assets in the Guarantor LP are insufficient to satisfy the obligations
owing on the covered bonds. We act as general partner, limited partner, swap counterparty, lender and liquidity provider to the
Guarantor LP, servicer for the underlying mortgages as well as the registered issuer of the covered bonds.
We consolidate the Guarantor LP as we have the decision-making power over the relevant activities through our role as
general partner and are exposed to variability from the performance of the underlying mortgages. As at October 31, 2023, thetotal amount of mortgages transferred and outstanding was $100 billion (October 31, 2022 – $121 billion) and $50 billion of coveredbonds were recorded as Deposits on our Consolidated Balance Sheets (October 31, 2022 – $43 billion).
Structured financeWe sell taxable and tax-exempt municipal bonds into Tender Option Bond (TOB) structures, which consist of a bond that is credit
enhanced by us and purchased by a TOB trust. The TOB trust finances the purchase from us by issuing floating-rate certificates toshort-term investors and a residual certificate that is purchased by us. We are the remarketing agent for the floating-rate
certificates and provide a liquidity facility to the short-term investors which requires us to purchase any certificates tendered but
not successfully remarketed. We credit enhance the bond purchased by the TOB trust with a letter of credit under which we are
required to extend funding if there are any losses on the underlying bonds. We earn interest on the residual certificate andreceive market-based fees for acting as remarketing agent and providing the liquidity facility and letter of credit.
We consolidate the TOB trust when we are the holder of the residual certificate as we have decision-making power over the
relevant activities, including the selection of the underlying municipal bonds and the ability to terminate the structure, and are
exposed to variability from the performance of the underlying municipal bonds. As at October 31, 2023, $5 billion of municipal
bonds were included in Securities related to consolidated TOB structures (October 31, 2022 – $6 billion) and a corresponding$5 billion of floating-rate certificates were included in Deposits on our Consolidated Balance Sheets (October 31, 2022 – $7 billion).
We establish structured entities to acquire loans for the purposes of issuing term collateralized loan obligation (CLO)
transactions and act as collateral manager. During the warehouse phase, we provide subordinated financing and, for certain
term CLO transactions, act as the arranger and placement agent, and may provide senior warehouse financing. Proceeds fromthe sale of the term CLO are used to repay our warehouse financing. During the term CLO phase, we continue to provide
subordinated financing, which serves as the first loss tranche that absorbs losses prior to the senior tranches, and may also
directly invest in the other tranches.
We consolidate these CLO structures as we have decision-making power over the relevant activities of the entity, which
include the initial selection and subsequent management of the underlying debt portfolio, and when our interests, including
direct investment plus collateral management fees, indicate that we are acting as a principal. As at October 31, 2023, $493 millionof Cash and due from banks and $1,675 million of Loans related to consolidated CLO structures (October 31, 2022 – $108 million
and $1,410 million, respectively) and $1,706 million of Deposits representing the subordinated and senior tranches held by third
parties (October 31, 2022 – $1,314 million) were recorded on our Consolidated Balance Sheets.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

187

Note 8 Structured entities (continued)

RBC managed investment funds
We are sponsors and investment managers of mutual and pooled funds, which give us the ability to direct the investment
decisions of the funds. We consolidate those mutual and pooled funds in which our interests, which include direct investment inseed capital plus management or performance fees, indicate that we are acting as a principal. As at October 31, 2023,$400 million of Trading securities held in the consolidated funds (October 31, 2022 – $524 million) and $331 million of Otherliabilities representing the fund units held by third parties (October 31, 2022 – $363 million) were recorded on our Consolidated
Balance Sheets.
Unconsolidated structured entities
We have interests in certain structured entities that we do not consolidate but have recorded assets and liabilities on our
Consolidated Balance Sheets related to our transactions and involvement with these entities.
The following table presents the assets and liabilities recorded on our Consolidated Balance Sheets and our maximum
exposure to loss related to our interests in unconsolidated structured entities. It also presents the size of each class of
unconsolidated structured entity, as measured by the total assets of the entities in which we have an interest.
As at October 31, 2023

Structured
finance

Multi-seller
conduits (1)(Millions of Canadian dollars)

On-balance sheet assets
Securities
Loans
Derivatives
Other assets$

On-balance sheet liabilities
Deposits
Derivatives
Other liabilities
Maximum exposure to loss (2)Total assets of unconsolidated structured entities

$

4 $
–
2
–
6 $

$

$

–
245
–
$
245
$ 54,715$ 53,641

Non-RBC
managedThird-party
investment securitization
funds
vehicles

– $
5,790
–
–
5,790 $

2,411 $–
26–
2,437 $–––$–
$ 10,580$ 31,037

$

–
1
–
$
1
$
3,068
$ 440,924

Structured
finance

Non-RBC
managedinvestment
funds

$
$
$
$

Other

– $
8,451
–
–
8,451 $––––
14,86381,028

Total

743 $
2,403
91
365
3,602 $$

3,158
16,644119
365
20,286

166
–
7
$
173
$
5,595
$ 461,919

$

166
246
7
$
419
$
88,821$ 1,068,549

Other

Total

As at October 31, 2022

Multi-seller
conduits (1)(Millions of Canadian dollars)

On-balance sheet assets
Securities
Loans
Derivatives
Other assets$$
On-balance sheet liabilities
Deposits
Derivatives
Other liabilities$

Maximum exposure to loss (2)Total assets of unconsolidated structured entities
(1)

(2)

$
$
$

255 $
–
25
–
280 $
–
171
–
171
48,26047,289

$

– $
5,334
–
6
5,340 $–––$–
$ 8,658$ 26,543$

Third-party
securitization
vehicles

3,089 $–––
3,089 $

–
–
–
$
–
$
3,758
$ 548,320

$
$
$
$

– $
8,494
–
–
8,494 $

595 $
2,487
100
568
3,750 $

3,939
16,315125574
20,953

– $
– $
–
–
–
–
– $
– $
14,339 $5,523 $
64,361 $ 554,573 $

–
171
–
171
80,5381,241,086

Total assets of unconsolidated structured entities represent the maximum assets that may have to be purchased by the conduits under purchase commitments
outstanding. Of the purchase commitments outstanding, the conduits have purchased financial assets totalling $37 billion as at October 31, 2023 (October 31, 2022 –$32 billion).
The maximum exposure to loss resulting from our interests in these entities consists mostly of investments, loans, fair value of derivatives, liquidity and credit
enhancement facilities. The maximum exposure to loss of the multi-seller conduits is higher than the on-balance sheet assets primarily because of the notional amountsof the backstop liquidity and credit enhancement facilities. Refer to Note 24 for further details.

Below is a description of our involvement with each significant class of unconsolidated structured entity.

Multi-seller conduits
We administer multi-seller ABCP conduit programs. Multi-seller conduits primarily purchase financial assets from clients andfinance those purchases by issuing ABCP.
In certain multi-seller conduit arrangements, we do not maintain any ownership of the multi-seller conduits that we
administer and have no rights to, or control of, its assets. As the administrative agent, we earn a residual fee for providing
services such as coordinating funding activities, transaction structuring, documentation, execution and monitoring. The ABCP
issued by each multi-seller conduit is in the conduit’s own name with recourse to the financial assets owned by the multi-seller
conduit, and is non-recourse to us except through our participation in liquidity and/or credit enhancement facilities.
We provide transaction-specific and program-wide liquidity facilities to the multi-seller conduits. In addition, we provide
program-wide credit enhancement to the multi-seller conduits which obligate us to purchase assets or advance funds in the
188

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

event the multi-seller conduit does not otherwise have funds from other sources, such as from the liquidity facilities, to settle
maturing ABCP. In some cases, we or another third party may provide transaction-specific credit enhancement which can takevarious forms. We receive market-based fees for providing these liquidity and credit facilities.
For certain transactions, we act as counterparty to various hedging contracts to facilitate our clients’ securitization of fixed
rate and/or foreign currency denominated assets through the conduits. These may take the form of forward contracts, interest
rate swaps or cross currency swaps. These derivatives expose us to foreign exchange and interest rate risks that are centrally
managed by our foreign exchange trading and swap desks, respectively, and credit risk on the underlying assets that is mitigatedby the credit enhancement described below.
Each transaction is structured with transaction-specific first loss protection provided by the third-party seller. Thisenhancement can take various forms, including but not limited to overcollateralization, excess spread, subordinated classes offinancial assets, guarantees or letters of credit. The amount of this enhancement varies but is generally designed to cover a
multiple of historical losses.
An unrelated third party (expected loss investor) absorbs losses, up to a maximum contractual amount, that may occur inthe future on the assets in the multi-seller conduits before the multi-seller conduits’ debt holders and us. In return for assuming
this multi-seller conduit first-loss position, each multi-seller conduit pays the expected loss investor a return commensurate with
its risk position. The expected loss investor has substantive power to direct the majority of the activities which significantly
impact the conduit’s economic performance, including initial selection and approval of the asset purchase commitments andliquidity facilities, approval of renewal and amendment of these transactions and facilities, sale or transfer of assets, ongoing
monitoring of asset performance, mitigation of losses, and management of the ABCP liabilities.
We do not consolidate these multi-seller conduits as we do not control the conduits as noted above.

Structured financeWe participate in certain municipal bond TOB structures that we do not consolidate. These structures are similar to those
consolidated municipal bond TOB structures described above; however, the residual certificates are held by third parties. We provide
liquidity facilities for the benefit of floating-rate certificate holders which may be drawn if certificates are tendered but not able to beremarketed. For a portion of these trusts, we also provide a letter of credit for the underlying bonds held in the trust. We do not havedecision-making power over the relevant activities of the structures; therefore, we do not consolidate these structures.
We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquireloans for the purposes of issuing a term CLO transaction. Subordinated financing is provided during the warehouse phase byeither the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs
losses prior to ourselves as the senior lender. We act as the arranger and placement agent for the term CLO transaction.
Proceeds from the sale of the term CLO are used to repay our senior warehouse financing, at which point we have no further
involvement with the transaction. We do not consolidate these CLO structures as we do not have decision-making power over the
relevant activities of the entity, which include the initial selection and subsequent management of the underlying debt portfolio.
We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.
Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as
the first loss tranche which absorbs losses prior to ourselves as the senior lender. These facilities tend to be longer in term thanthe CLO warehouse facilities and benefit from credit enhancement generally designed to cover a multiple of historical losses. We
do not consolidate these structures as we do not have decision-making power over the relevant activities of the entity, which
include the initial selection and subsequent management of the underlying debt portfolio.
Non-RBC managed investment funds
We enter into fee-based equity derivative transactions with third parties including mutual funds, unit investment trusts and otherinvestment funds. These transactions provide their investors with the desired exposure to reference funds, and we economicallyhedge our exposure to these derivatives by investing in those reference funds. We also act as custodian for several funds. We do notconsolidate those reference funds that are managed by third parties as we do not have power to direct their investing activities.
We provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate preferredshares and invest in portfolios of tax-exempt municipal bonds. Undrawn liquidity commitments expose us to the liquidity risk ofthe preferred shares and drawn commitments expose us to the credit risk of the underlying municipal bonds. We do notconsolidate these third-party managed funds as we do not have power to direct their investing activities.
Third-party securitization vehicles
We hold interests in securitization vehicles that provide funding to certain third parties on whose behalf the entities were created. The
activities of these entities are limited to the purchase and sale of specified financial assets from the sponsor. We, as well as otherfinancial institutions, are obligated to provide funding up to our maximum commitment level and are exposed to credit losses on theunderlying assets after various credit enhancements. Enhancements can take various forms, including but not limited toovercollateralization, excess spread, subordinated classes of financial assets, guarantees or letters of credit. The amount of thisenhancement varies but is generally designed to cover a multiple of historical losses. We do not consolidate these entities as we do
not have decision-making power over the relevant activities, including the entities’ investing and financing activities.
Other
Other unconsolidated structured entities include managed investment funds, arrangements to pass credit risk to third parties,
credit investment products and tax credit funds.
We are sponsors and investment managers of mutual and pooled funds, which gives us the ability to direct the investment
decisions of the funds. We do not consolidate those mutual and pooled funds if we exercise our decision-making power as anagent on behalf of other unit holders.
We use structured entities to generally transform credit derivatives into cash instruments, to distribute credit risk and tocreate customized credit products to meet investors’ specific requirements. We enter into derivative contracts, including credit
derivatives, to purchase protection from these entities (credit protection) and convert various risk factors such as yield, currency
or credit risk of underlying assets to meet the needs of the investors. We act as sole arranger and swap provider for certain
entities and, in some cases, fulfill other administrative functions for the entities. We do not consolidate these credit investment
product entities as we do not have decision-making power over the relevant activities, which include selection of the collateraland reference portfolio, and are not exposed to a majority of the benefits or risks of the entities.
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

189

Note 8 Structured entities (continued)
We created certain funds to pass through tax credits received from underlying low-income housing, historic rehabilitation
real estate projects to third parties, new market tax credits or renewable energy tax credits to third parties (tax credit funds). We
are sponsors of the tax credit funds as a result of our responsibility to manage the funds, arrange the financing, and perform theadministrative duties of these tax credit funds. We do not consolidate the tax credit funds as the third-party investors in thesefunds have the decision-making power to select the underlying investments and are exposed to the majority of the residualownership and tax risks of the funds.
We also purchase passive interests in renewable energy tax credit entities created and controlled by third parties. We do notconsolidate these third-party funds as we do not have decision-making power over the relevant activities and our investments
are managed as part of larger portfolios which are held for trading purposes.
Other interests in unconsolidated structured entities
In the normal course of business, we buy and sell passive interests in certain third-party structured entities, including mutual
funds, exchange traded funds, and government-sponsored ABS vehicles. Our investments in these entities are managed as part oflarger portfolios which are held for trading, liquidity or hedging purposes. We did not create or sponsor these entities and do nothave any decision-making power over their ongoing activities. Our maximum exposure to loss is limited to our on-balance sheet
investments in these entities, which are not included in the table above. As at October 31, 2023 and 2022, our investments in these
entities were included in Trading and Investment securities on our Consolidated Balance Sheets. Refer to Note 3 and Note 4 forfurther details on our Trading and Investment securities.
Sponsored entities
We are a sponsor of certain structured entities in which we have interests but do not consolidate. In determining whether we area sponsor of a structured entity, we consider both qualitative and quantitative factors, including the purpose and nature of theentity, our initial and continuing involvement and whether we hold subordinated interests in the entity. We are considered to be
the sponsor of certain credit investment products, tax credit entities, RBC managed mutual funds and a commercial mortgage
securitization vehicle. During the year ended October 31, 2023, we did not transfer any commercial mortgages (October 31, 2022 –$450 million) to a sponsored securitization vehicle in which we did not have any interests as at the end of the reporting period.
Financial support provided to structured entities
During the years ended October 31, 2023 and 2022, we have not provided any financial or non-financial support to any
consolidated or unconsolidated structured entities when we were not contractually obligated to do so. Furthermore, we have nointention to provide such support in the future.
Note 9 Derivative financial instruments and hedging activities
Derivative instruments are categorized as either financial or non-financial derivatives. Financial derivatives are financial
contracts whose value is derived from an underlying interest rate, foreign exchange rate, credit risk, and equity or equity index.
Non-financial derivatives are contracts whose value is derived from a precious metal, commodity instrument or index. The
notional amount of derivatives represents the contract amount used as a reference point to calculate payments. Notionalamounts are generally not exchanged by counterparties, and do not reflect our EAD.
Financial derivatives
Forwards and futures
Forward contracts are non-standardized agreements that are transacted between counterparties in the OTC market, whereas
futures are standardized contracts with respect to amounts and settlement dates, and are traded on regular futures exchanges.
Examples of forwards and futures are described below.
Interest rate forwards (forward rate agreements) and futures are contractual obligations to buy or sell an interest-ratesensitive financial instrument on a predetermined future date at a specified price.
Foreign exchange forwards and futures are contractual obligations to exchange one currency for another at a specified pricefor settlement at a predetermined future date.
Equity forwards and futures are contractual obligations to buy or sell at a fixed value (the specified price) of an equity index,
a basket of stocks or a single stock at a predetermined future date.

Swaps
Swaps are OTC contracts in which two counterparties exchange a series of cash flows based on agreed upon rates applied to a
notional amount. Examples of swap agreements are described below.
Interest rate swaps are agreements where two counterparties exchange a series of payments based on different interest
rates applied to a notional amount in a single currency. Certain interest rate swaps are transacted and settled through clearing
houses which act as central counterparties. Cross currency swaps involve the exchange of fixed payments in one currency for thereceipt of fixed payments in another currency. Cross currency interest rate swaps involve the exchange of both interest andnotional amounts in two different currencies.
Equity swaps are contracts in which one counterparty agrees to pay or receive from the other cash flows based on changes
in the value of an equity index, a basket of stocks or a single stock.
Options
Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation, either
to buy (call option) or sell (put option) a security, exchange rate, interest rate, or other financial instrument or commodity at a
specified price, at or by a predetermined future date. The seller (writer) of an option can also settle the contract by paying the
cash settlement value of the purchaser’s right. The seller (writer) receives a premium from the purchaser for this right. The
various option agreements that we enter into include but are not limited to interest rate options, foreign currency options, equity
options and index options.
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Credit derivatives
Credit derivatives are OTC contracts that transfer credit risk related to an underlying financial instrument (referenced asset)
from one counterparty to another. Credit derivatives include credit default swaps, credit default baskets and total return swaps.
Credit default swaps provide protection against the decline in the value of the referenced asset as a result of specified credit
events such as default or bankruptcy. They are similar in structure to an option, whereby the purchaser pays a premium to theseller of the credit default swap in return for payment contingent on a credit event affecting the referenced asset.
Credit default baskets are similar to credit default swaps except that the underlying referenced financial instrument is agroup of assets instead of a single asset.
Total return swaps are contracts where one counterparty agrees to pay or receive from the other cash amounts based onchanges in the value of a referenced asset or group of assets, including any returns such as interest earned on these assets, inexchange for amounts that are based on prevailing market funding rates.
Other derivative products
Other contracts are stable value and equity derivative contracts.
Non-financial derivatives
Other contracts also include non-financial derivative products such as precious metal and commodity derivative contracts inboth the OTC and exchange markets.
Derivatives issued for trading purposes
Most of our derivative transactions relate to client-driven sales and trading activities, and associated market risk hedging. Sales
activities include the structuring and marketing of derivative products to clients, enabling them to modify or reduce risks. Trading
involves market-making, positioning and arbitrage activities. Market-making involves quoting bid and offer prices to other market
participants with the intention of generating revenue based on spread and volume. Positioning involves the active management ofderivative transactions with the expectation of profiting from favourable movements in prices, rates, or indices. Arbitrage
activities involve identifying and profiting from price differentials between markets and product types. Any realized and unrealized
gains or losses on derivatives used for trading purposes are recognized immediately in Non-interest income – Trading revenue.
Derivatives issued for other-than-trading purposes
We also use derivatives for purposes other than trading, primarily for hedging, in conjunction with the management of interest
rate, credit, equity and foreign exchange risk related to our funding, lending, investment activities and asset/liability
management.
Interest rate swaps are used to manage our exposure to interest rate risk by modifying the repricing or maturity
characteristics of existing and/or forecasted assets and liabilities, including funding and investment activities. Purchased options
are used to hedge redeemable deposits and other options embedded in consumer products. We manage our exposure to foreign
currency risk with cross currency swaps and foreign exchange forward contracts. We predominantly use credit derivatives tomanage our credit exposures. We mitigate industry sector concentrations and single-name exposures related to our credit
portfolio by purchasing credit derivatives to transfer credit risk to third parties.
Certain derivatives and cash instruments are specifically designated and qualify for hedge accounting. We also enter into
derivative transactions to economically hedge certain exposures that do not otherwise qualify for hedge accounting, or where
hedge accounting is not considered economically feasible to implement. In such circumstances, changes in fair value arereflected in Non-interest income – Other income.
Notional amount of derivatives by term to maturity (absolute amounts) (1)As at October 31, 2023

Term to maturity
Within1 year(Millions of Canadian dollars)

Over-the-counter contracts
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Options written
Foreign exchange contracts
Forward contracts
Cross currency swaps
Cross currency interest rate swaps
Options purchased
Options written
Credit derivatives (2)Other contracts (3)Exchange-traded contracts
Interest rate contracts
Futures – long positions
Futures – short positions
Options purchased
Options written
Foreign exchange contracts
Futures – long positions
Other contracts$

1 through5 yearsOver
5 years

Total

Trading

Other than
Trading

1,008,978 $4,220,675
162,845
144,138

691,397 $358 $ 1,700,733 $ 1,700,733 $–
6,651,849
4,418,165
15,290,689
14,169,938
1,120,751
420,341
166,275
749,461
749,257204
412,239
179,532
735,909735,562347

2,336,565
30,098972,658
244,721254,534
11,709261,528

106,069
88,6252,055,058
73,407
71,039108,637
140,225

4,082
74,5381,141,295
2,663
2,305
114,463
13,0882,446,716
193,261
4,169,011
320,791
327,878
234,809414,841

2,363,796
189,100
4,107,125
320,791
327,878
234,066
401,373

82,9204,161
61,886––743
13,468103,195
99,792
12,801
11,20624,28354,817
3
1,468

1
1
–
–

127,479
154,610
12,804
12,674

126,879
154,445
12,804
12,674

600
165
–
–

124
571,970–
154,677

–
4,586

124
731,233

124
731,233––$ 10,447,537 $ 11,054,134 $ 6,121,352 $ 27,623,023 $ 26,337,778 $ 1,285,245
Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

191

Note 9 Derivative financial instruments and hedging activities (continued)
As at October 31, 2022

Term to maturity
Within1 year

1 through5 yearsOver
5 years

Trading

Other than
Trading

763,398 $
4,994,006
100,504
108,770

44,188 $
6,934,996
577,780
556,652353 $
4,781,148
151,084
182,841

807,939 $
16,710,150
829,368
848,263806,576 $16,001,414
829,368
848,263

1,363
708,736––

2,187,124
87,942518,244
58,07562,266
1,143
228,709

86,136
67,345
1,572,490
18,061
16,62335,621
93,431

2,648
82,659879,541
3,199
3,274
6,751
19,3922,275,908
237,946
2,970,275
79,33582,16343,515341,532

2,230,901
233,617
2,918,063
79,33582,16342,785
327,860

45,007
4,329
52,212––730
13,672148,032
233,941
56,353
16,39450,86998,763
12,173
6,168

–
65
–
–

198,901
332,769
68,526
22,562

197,251
332,320
68,526
22,562

1,650
449
–
–

164
539,103–
89,147

–
2,094

164
630,344164
630,344––

10,104,168 $10,260,443 $

6,115,049 $

26,479,660 $

25,651,512 $(Millions of Canadian dollars)

Over-the-counter contracts
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Options written
Foreign exchange contracts
Forward contracts
Cross currency swaps
Cross currency interest rate swaps
Options purchased
Options written
Credit derivatives (2)Other contracts (3)Exchange-traded contracts
Interest rate contracts
Futures – long positions
Futures – short positions
Options purchased
Options written
Foreign exchange contracts
Futures – long positions
Other contracts

$

$
(1)

Total

828,148

The derivative notional amounts are determined using the standardized approach for measuring counterparty credit risk (SA-CCR) in accordance with the Capital
Adequacy Requirements (CAR).
Credit derivatives with a notional value of $1 billion (October 31, 2022 – $1 billion) are economic hedges. Trading credit derivatives comprise protection purchased of$119 billion (October 31, 2022 – $26 billion) and protection sold of $115 billion (October 31, 2022 – $17 billion).
Other contracts exclude loan underwriting commitments of $2 billion (October 31, 2022 – $6 billion), which are not classified as derivatives under CAR guidelines.

(2)
(3)

Fair value of derivative instruments (1)As at
October 31, 2023

Positive(Millions of Canadian dollars)

Held or issued for trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Options written$

Foreign exchange contracts
Forward contracts
Cross currency swaps
Cross currency interest rate swaps
Options purchased
Options written
Credit derivatives
Other contracts
Held or issued for other-than-trading purposes
Interest rate contracts
Swaps
Foreign exchange contracts
Forward contracts
Cross currency swaps
Cross currency interest rate swaps
Credit derivatives
Other contracts
Total gross fair values before:
Valuation adjustments determined on a pooled basis
Impact of netting agreements that qualify for balance sheet offset
(1)
192

76
26,320
11,230–37,626

October 31, 2022

Negative$24
22,965–
11,776
34,765

Positive$

Negative

77 $25
25,69021,60812,056––
12,20137,823
33,83422,972
7,370
55,2682,623–
88,233
175
16,319142,353

22,655
5,815
46,550–1,790
76,810176
20,865
132,616

37,7348,680
49,7582,623–
98,795388
18,474
155,480

37,631
9,087
38,230–2,571
87,519125
21,084
142,562

1,907
1,907

7,436
7,436

2,244
2,244

6,880
6,880

860
509
268
237
–
–
–
22
555
4,484
374
6,677
1,415
4,993
642
6,936
49
–
–
–
71
109
313
273
3,442
12,5383,199
14,089145,795
145,154
158,679
156,651(1,801)(981)(2,055)(975)(1,544)(1,544)(2,185)(2,185)$ 142,450 $ 142,629 $ 154,439 $ 153,491

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Fair value of derivative instruments by term to maturity (1)As at

October 31, 2023
(Millions of Canadian dollars)Less than
1 yearDerivative assets
Derivative liabilities$ 46,148
47,707(1)

1 through5 yearsOver
5 years

October 31, 2022
Total

Less than
1 year52,165 44,137 $ 142,450 $ 56,050
51,690 43,232
142,62958,504

1 through5 yearsOver
5 years

Total

56,792 41,597 $ 154,439
54,361 40,626
153,491

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.

Interest rate benchmark reform (1)We use interest rate contracts in fair value hedges and cash flow hedges to manage our exposure to interest rate risk from ourexisting and/or forecast assets and liabilities. We also use foreign denominated deposit liabilities in net investment hedges tomanage the foreign exchange risk arising from our investments in foreign operations. The hedging instruments designated to
manage these risks reference IBORs in multiple jurisdictions and will be affected by the Reform as the markets transition to ABRs
as discussed in Note 2.
The following table presents the notional or principal amount of our hedging instruments which reference IBORs and are
affected by the Reform as discussed in Note 2. The notional or principal amounts of our hedging instruments also approximatesthe extent of the risk exposure we manage through hedging relationships:
As at(Millions of Canadian dollars)Interest rate contracts
USD LIBOR
CDOR
Total Return Swaps
CDOR
Non-derivative instruments
USD LIBOR(1)

October 31, 2023

October 31, 2022

Notional/Principal
amounts

Notional/Principal
amounts$–
115,048$

40,208114,159

736

801

–

237

$ 115,784$ 155,405

Excludes interest rate contracts and non-derivative instruments which reference rates in multi-rate jurisdictions, including EURO Interbank Offered Rate and Australian
Bank Bill Swap Rate (BBSW).

Derivative-related credit risk
Credit risk from derivative transactions is generated by the potential for the counterparty to default on its contractual
obligations when one or more transactions have a positive market value to us. Therefore, derivative-related credit risk isrepresented by the positive fair value of the instrument and is normally a small fraction of the contract’s notional amount.
We subject our derivative transactions to the same credit approval, limit and monitoring standards that we use for managing
other transactions that create credit exposure. This includes evaluating the creditworthiness of counterparties, and managing
the size, diversification and maturity structure of the portfolio. Credit utilization for all products is compared with establishedlimits on a continual basis and is subject to a standard exception reporting process. We use a single internal rating system for all
credit risk exposure, as outlined in the internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
Offsetting is a technique that can reduce credit exposure from derivatives and is generally facilitated through the use of
master netting agreements and achieved when specific criteria are met in accordance with our accounting policy in Note 2. A
master netting agreement provides for a single net settlement of all financial instruments covered by the agreement in the eventof default. However, credit risk is reduced only to the extent that our financial obligations to the same counterparty can be set off
against obligations of the counterparty to us. We maximize the use of master netting agreements to reduce derivative-related
credit exposure. Our overall exposure to credit risk that is reduced through master netting agreements may change substantiallyfollowing the reporting date as the exposure is affected by each transaction subject to the agreement as well as by changes inunderlying market rates. Measurement of our credit exposure arising out of derivative transactions is reduced to reflect theeffects of netting in cases where the enforceability of that netting is supported by appropriate legal analysis as documented in
our trading credit risk policies.
The use of collateral is another significant credit mitigation technique for managing derivative-related counterparty credit
risk. Mark-to-market provisions in our agreements with some counterparties, typically in the form of a Credit Support Annex,
provide us with the right to request that the counterparty pay down or collateralize the current market value of its derivatives
positions when the value exceeds a specified threshold amount.
Replacement cost and credit equivalent amounts are determined in accordance with OSFI’s non-modelled regulatory SA-CCR
under the CAR guidelines. The replacement cost represents the total fair value of all outstanding contracts in a gain position afterfactoring in the master netting agreements and applicable margins. The credit equivalent amount is defined as the replacement
cost plus an additional amount for potential future credit exposure, scaled by a regulatory factor. The risk-weighted equivalent isdetermined by applying appropriate risk-weights to the credit equivalent amount, including those risk weights reflective of model
approval under the internal ratings based approach.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

193

Note 9 Derivative financial instruments and hedging activities (continued)
Derivative-related credit risk (1)As at
October 31, 2023

Replacement
cost(Millions of Canadian dollars)

Over-the-counter contracts
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Options written
Foreign exchange contracts
Forward contracts
Swaps
Options purchased
Options written
Credit derivatives
Other contracts
Exchange-traded contracts(1)(2)

Creditequivalentamount

$

58
9,613
610
123

$

94
24,4481,547
564

October 31, 2022

CreditequivalentamountRisk-weighted Replacement
cost
equivalent (2)

$

6
3,721
353
152

$

46
9,699
108
15

$

Risk-weighted
equivalent (2)76
21,698
426
543

$

5
5,187
119
164

5,655
4,261
841
95
356
1,933
7,186

27,862
21,483
1,742
441
1,834
16,002
16,191

5,611
4,274
383
109
219
4,929
324

8,772
6,072
536
28
299
5,196
11,09829,56522,188
1,111
313
766
20,457
19,870

5,940
4,556
340
86
114
7,520
397

$ 30,731$ 112,208$ 20,081$ 41,869$ 117,013$ 24,428

The amounts presented are net of master netting agreements in accordance with CAR guidelines.
The risk-weighted balances are calculated in accordance with CAR guidelines and exclude CVA of $13 billion (October 31, 2022 – $16 billion).

Replacement cost of derivative instruments by risk rating and by counterparty type
As at October 31, 2023
Counterparty type (2)Risk rating (1)(Millions of Canadian dollars)

Gross positive fair values
Impact of master netting agreements andapplicable margins
Replacement cost (after netting
agreements)

AAA, AAABBB BB or lower
Total
Banks
$ 36,224 $ 70,010 $ 28,956$ 10,605 $ 145,795 $ 69,841

24,025$ 12,199 $

60,556

22,7659,454 $

6,191

$

7,718

115,064

68,1512,887 $

30,731 $

1,690

OECD
governments
Other
Total
$ 20,268 $ 55,686 $ 145,795

20,237$

26,67631 $ 29,010 $

115,064
30,731As at October 31, 2022
Counterparty type (2)Risk rating (1)(Millions of Canadian dollars)

Gross positive fair values
Impact of master netting agreements andapplicable margins
Replacement cost (after netting
agreements)(1)(2)

AAA, AAA

BBB$ 39,001 $ 72,983 $ 29,690
21,55262,614$ 17,449 $ 10,369 $BB or lower$ 17,005 $

21,818
7,872

$

Total

Banks

158,679 $ 73,616

10,826

116,810

71,582

6,179 $

41,869 $

2,034

OECD
governments

Other$ 22,727 $ 62,336 $
22,597$

22,631130 $ 39,705 $Total

158,679
116,81041,869

Our internal risk ratings of AAA, AA, A and BBB represent investment grade ratings and ratings of BB or lower represent non-investment grade ratings, as outlined in theinternal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
Counterparty type is defined in accordance with CAR guidelines.

Derivatives in hedging relationships
We apply hedge accounting to minimize volatility in earnings and capital caused by changes in interest rates or foreign exchange
rates. Interest rate and currency fluctuations will either cause assets and liabilities to appreciate or depreciate in market value
or cause variability in forecasted cash flows. When a hedging relationship is effective, gains, losses, revenue and expenses of thehedging instrument will offset the gains, losses, revenue and expenses of the hedged item.
Derivatives used in hedging relationships are recorded in Other Assets – Derivatives or Other Liabilities – Derivatives on our
Consolidated Balance Sheets. Foreign currency-denominated liabilities used in net investment hedging relationships arerecorded in Deposits – Business and Government and Subordinated debentures on our Consolidated Balance Sheets. Gains andlosses relating to hedging ineffectiveness are recorded in Non-Interest income and amounts reclassified from hedge reserves in
OCI to income are recorded in Net-interest income for cash flow hedges and Non-interest income for net investment hedges.
We assess and measure the effectiveness of a hedging relationship based on the change in the fair value or cash flows of thederivative hedging instrument relative to the change in the fair value or cash flows of the hedged item attributable to the hedgedrisk. When cash instruments are designated as hedges of foreign exchange risks, only changes in their value due to foreignexchange risk are included in the assessment and measurement of hedge effectiveness.
Potential sources of ineffectiveness can be attributed to differences between hedging instruments and hedged items:•
Mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing of wheninterest rates are reset and frequency of payment.
•
Difference in the discounting factors between the hedged item and the hedging instrument, taking into consideration the
different reset frequency of the hedged item and hedging instrument.
•
Hedging derivatives with a non-zero fair value at inception date of the hedging relationship, resulting in mismatch interms with the hedged item.
194

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Below is a description of our risk management strategy for each risk exposure that we decide to hedge:

Interest rate risk
We use interest rate contracts to manage our exposure to interest rate risk by modifying the repricing characteristics of existing
and/or forecasted assets and liabilities, including funding and investment activities. The swaps are designated in either a fairvalue hedge or a cash flow hedge and predominantly reference IBORs across multiple jurisdictions. Certain swaps will beaffected by the Reform as the market transitions to ABRs.
For fair value hedges, we use interest rate contracts to manage the fair value movements of our fixed rate instruments due
to changes in benchmark interest. The interest rate swaps are entered into on a one-to-one basis to manage the benchmark
interest rate risk, and its terms are critically matched to the specified fixed rate instruments.
We also use interest rate swaps in fair value hedges to manage interest rate risk from residential mortgage assets andfunding liabilities. Our exposure from this portfolio changes with the origination of new loans, repayments of existing loans andsale of securitized mortgages. Accordingly, we have adopted dynamic hedging for that portfolio, in which the hedge relationshipis rebalanced on a more frequent basis, such as on a bi-weekly or on a monthly basis.
For cash flow hedges, we use interest rate contracts to manage the exposure to cash flow variability of our variable rate
instruments as a result of changes in benchmark interest rates. The variable rate instruments and forecast transactions whichreference certain IBORs and will be affected by the Reform. Whilst some of the interest rate swaps are entered into on a one-toone basis to manage a specific exposure, other interest rate swaps may be entered into for managing interest rate risks of aportfolio of assets and liabilities.
Foreign exchange risk
We manage our exposure to foreign currency risk with cross currency swaps in a cash flow hedge, and foreign exchange forward
contracts in a net investment hedge. Certain cash instruments may also be designated in a net investment hedge, whereapplicable.
For cash flow hedges, we use cross currency swaps and forward contracts to manage the cash flow variability arising fromfluctuations in foreign exchange rates on our issued foreign denominated fixed rate liabilities and highly probable forecasted
transactions. The maturity profile and repayment terms of these swaps are matched to those of our foreign denominatedexposures to limit our cash flow volatility from changes in foreign exchange rates.
For net investment hedges, we use a combination of foreign exchange forwards and cash instruments, such as foreign
denominated deposit liabilities, to manage our foreign exchange risk arising from our investments in foreign operations. Our
most significant exposures include USD, GBP and Euro. When hedging net investments in foreign operations using foreignexchange forwards, only the undiscounted spot element of the foreign exchange forward is designated as the hedging
instrument. Accordingly, changes in the fair value of the hedging instrument as a result of changes in forward rates and theeffects of discounting are not included in the hedging effectiveness assessment. Foreign operations are only hedged to the extent
of the principal of the foreign denominated deposit liabilities or notional amount of the derivative; we generally do not expect toincur significant ineffectiveness on hedges of net investments in foreign operations.
Equity price risk
We use total return swaps in cash flow hedges to mitigate the cash flow variability of the expected payment associated with our
cash settled share-based compensation plan for certain key employees by exchanging interest payments for indexed RBC shareprice change and dividend returns.
Credit risk
We predominantly use credit derivatives to economically hedge our credit exposures. We mitigate industry sector concentrations
and single-name exposures related to our credit portfolio by purchasing credit derivatives to transfer credit risk to third parties.
Derivative instruments designated in hedging relationships (1)The following table presents the fair values of the derivative instruments and the principal amounts of the non-derivative
liabilities, categorized by their hedging relationships, as well as derivatives that are not designated in hedging relationships.
As at(Millions of Canadian dollars)

AssetsDerivative instruments
Liabilities
Derivative instruments
Non-derivative instruments
(1)
n.a.

October 31, 2023

October 31, 2022

Designated as hedging instruments
in hedging relationships

Designated as hedging instruments
in hedging relationships

Fair value Cash flow

$ 156 $

19

50
–

100
–

Net
investment

$

13
409
25,427

Not designatedin a hedging
relationship

Fair value$$

142,262
142,070n.a.

Cash flowNet
investment

247 $

57 $

27
–

–
–

36
126
25,798Not designatedin a hedging
relationship$

154,099
153,338
n.a.

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
not applicable

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

195

Note 9 Derivative financial instruments and hedging activities (continued)
The following tables provide the remaining term to maturity analysis of the notional amounts and the weighted average rates of
the hedging instruments and their carrying amounts by types of hedging relationships:
Fair value hedges
As at October 31, 2023
Notional amounts(Millions of Canadian dollars, except average rates)

Interest rate risk
Interest rate contracts
Hedge of fixed rate assets
Hedge of fixed rate liabilities
Weighted average fixed interest rate
Hedge of fixed rate assets
Hedge of fixed rate liabilities$

Carrying amount (1)Within1 year

1 through5 yearsOver
5 years

Total

Assets

8,853
23,592$ 62,948
75,130$ 21,702
10,236$ 93,503
108,958

$ 156
–

4.3%
2.1%

3.6%
2.4%

3.2%
2.6%

3.6%
2.3%

As at October 31, 2022
Notional amounts(Millions of Canadian dollars, except average rates)

Interest rate risk
Interest rate contracts
Hedge of fixed rate assets
Hedge of fixed rate liabilities
Weighted average fixed interest rate
Hedge of fixed rate assets
Hedge of fixed rate liabilities(1)$

Liabilities

$

–
50

Carrying amount (1)Within1 year

1 through5 yearsOver
5 years

Total

Assets

9,083
13,231$ 32,173
69,419$ 15,516
10,094$ 56,772
92,744

$ 247
–

1.1%
1.9%

2.5%
1.8%

2.8%
2.0%

2.3%
1.9%

Liabilities

$

3
24

The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.

Cash flow hedges
As at October 31, 2023
Notional amounts
Within1 year

1 through5 years$ 63,927
16,696$ 68,470
63,527

4.5%
4.9%

3.4%
3.8%

(Millions of Canadian dollars, except average rates)

Interest rate risk
Interest rate contracts
Hedge of variable rate assets
Hedge of variable rate liabilities
Weighted average fixed interest rate
Hedge of variable rate assets
Hedge of variable rate liabilities
Foreign exchange risk
Cross currency swaps
Weighted average CAD-EUR exchange rate
Weighted average CAD-USD exchange rate

$

63
1.48
n.a.

$

916
1.44
1.34

$

$

Carrying amount (1)Over
5 years

Total

1,097
32,802$ 133,494
113,025

3.7%
2.8%

4.0%
3.7%

–
n.a.
n.a.

$

979
1.45
1.34

Assets

$

–
–

$

–
–

$

19

$

14

As at October 31, 2022
Notional amounts
Within1 year

1 through5 years$ 50,436
6,221$ 74,726
42,830

3.3%
2.0%

2.8%
1.5%

(Millions of Canadian dollars, except average rates)

Interest rate risk
Interest rate contracts
Hedge of variable rate assets
Hedge of variable rate liabilities
Weighted average fixed interest rate
Hedge of variable rate assets
Hedge of variable rate liabilities
Foreign exchange risk
Cross currency swaps
Weighted average CAD-EUR exchange rate
Weighted average CAD-USD exchange rate
(1)
n.a.

196

$

–
n.a.
n.a.

$

314
1.44
n.a.

$

$

Carrying amount (1)Over
5 years

Total

1,023
24,024$ 126,185
73,075

2.5%
2.0%

3.0%
1.7%

–
n.a.
n.a.

$

Liabilities

314
1.44
n.a.

AssetsLiabilities

$

–
–

$

–
–

$

32

$

–

The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
not applicableRoyal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Net investment hedges
As at October 31, 2023
Notional/Principal
Within1 year

1 through5 years

6,061
1.28
n.a.
–
$ 18,920
1.36
1.45
1.68

$ 14,653
1.29
n.a.
1.71
$
–
n.a.
n.a.
n.a.

(Millions of Canadian dollars, except average rates)

Foreign exchange risk
Foreign currency liabilities
Weighted average CAD-USD exchange rate
Weighted average CAD-EUR exchange rate
Weighted average CAD-GBP exchange rate
Forward contracts
Weighted average CAD-USD exchange rate
Weighted average CAD-EUR exchange rate
Weighted average CAD-GBP exchange rate

$

$

$

Carrying amountOver
5 years

Total

AssetsLiabilities

6,413
1.33
n.a.
–
–
n.a.
n.a.
n.a.

$ 27,127
1.30
n.a.
1.71
$ 18,920
1.36
1.45
1.68

n.a.

$25,427

13$$

As at October 31, 2022
Notional/Principal(Millions of Canadian dollars, except average rates)

Foreign exchange risk
Foreign currency liabilities
Weighted average CAD-USD exchange rate
Weighted average CAD-EUR exchange rate
Weighted average CAD-GBP exchange rate
Forward contracts
Weighted average CAD-USD exchange rate
Weighted average CAD-EUR exchange rate
Weighted average CAD-GBP exchange rate
n.a.

$

$

Within1 year

1 through5 years

5,462
1.31
–
–
6,089
1.34
1.36
1.55

$ 20,851
1.28
1.51
1.71
$
–
n.a.
n.a.
n.a.

$

$

409

Carrying amountOver
5 years

Total

AssetsLiabilities

1,025
1.28
1.48
–
–
n.a.
n.a.
n.a.

$ 27,338
1.29
1.51
1.71
$ 6,089
1.34
1.36
1.55

n.a.

$ 25,798

36

$

$

126

not applicable

The following tables present the details of the hedged items categorized by their hedging relationships:
Fair value hedges – Assets and liabilities designated as hedged items

Carrying amount(Millions of Canadian dollars)

As at and for the year ended October 31, 2023
Accumulated amount of fairvalue adjustments on thehedged item included in the
carrying amount

Assets Liabilities

AssetsLiabilities

Interest rate risk
Fixed rate assets (1)$86,734 $– $ (3,911) $–Fixed rate liabilities (1)– 102,535

Carrying amount(Millions of Canadian dollars)

Assets–(6,340)Liabilities

AssetsLiabilities– $ (3,285) $–Fixed rate liabilities (1)–(1)

Securities – Investment, net of
applicable allowance; Loans – Retail;Loans – Wholesale
Deposits – Business and government;
Subordinated debentures;
Deposits – Bank$ (1,445)
276

As at and for the year ended October 31, 2022
Accumulated amount of fairvalue adjustments on thehedged item included in the
carrying amountInterest rate risk
Fixed rate assets (1)$ 52,216 $Changes in fairvalues used for
calculating hedge
Consolidated Balance Sheet items:
ineffectiveness

86,738–(5,924)

Changes in fairvalues used for
calculating hedge
Consolidated Balance Sheet items:
ineffectiveness

Securities – Investment, net of
applicable allowance; Loans – Retail;Loans – Wholesale
Deposits – Business and government;
Subordinated debentures;
Deposits – Bank$ (3,695)
5,742

As at October 31, 2023, the accumulated amount of fair value hedge adjustments remaining on our Consolidated Balance Sheets for hedged items that have ceased to be
adjusted for hedging gains and losses is a of loss of $539 million for fixed rate assets and a gain of $259 million for fixed rate liabilities (October 31, 2022 – loss of$486 million and loss of $25 million, respectively).

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

197

Note 9 Derivative financial instruments and hedging activities (continued)
Cash flow and net investment hedges – Assets and liabilities designated as hedged items
As at and for the year ended October 31, 2023

Consolidated Balance Sheet items:(Millions of Canadian dollars)

Changes in fairvalues used for
calculating hedge
ineffectivenessCash flow hedge/foreign
currency translation reserve$$

Continuing
hedgesDiscontinued
hedgesCash flow hedges
Interest rate risk
Variable rate assets

Securities – Investment, net of
applicable allowance; Loans – Retail;Interest bearing deposits with banks;
Assets purchased under reverse
repurchase agreements and securities borrowed
Variable rate liabilities
Deposits – Business and government;
Deposits – Personal;
Obligations related to assets sold under
repurchase agreements and securities loaned
Foreign exchange risk
Fixed rate assets
Securities – Investment, net of
applicable allowance
Net investment hedges
Foreign exchange risk
Foreign subsidiaries
n.a.

2,248

(2,115) $(3,126)(2,558)

3,535

5,607

50

–

–

1,513

(7,297)(382)

As at and for the year ended October 31, 2022

Consolidated Balance Sheet items:(Millions of Canadian dollars)

Cash flow hedges
Interest rate risk
Variable rate assets

Variable rate liabilities

Securities – Investment, net of
applicable allowance; Loans – Retail;Interest bearing deposits with banks;
Assets purchased under reverse
repurchase agreements and securities borrowed
Deposits – Business and government;
Deposits – Personal;
Obligations related to assets sold under
repurchase agreements and securities loaned

Foreign exchange risk
Fixed rate assets

$

4,720

Continuing
hedges$Discontinued
hedges(1,777) $(2,668)(6,895)

5,471

2,231

Securities – Investment, net of
applicable allowance

(17)

7

–

n.a.

1,927

(5,936)(421)

Net investment hedges
Foreign exchange risk
Foreign subsidiaries
n.a.

Cash flow hedge/foreign
currency translation reserve

Changes in fairvalues used for
calculating hedge
ineffectivenessnot applicable

Effectiveness of designated hedging relationships
For the year ended October 31, 2023

(Millions of Canadian dollars)

Change in fair valueof hedging
instrument

Fair value hedges
Interest rate risk
Interest rate contracts – fixed rate assets$
Interest rate contracts – fixed rate liabilities
Cash flow hedges
Interest rate risk
Interest rate contracts – variable rate assets
Interest rate contracts – variable rate liabilities
Foreign exchange risk
Cross currency swap – fixed rate assets
Net investment hedges
Foreign exchange risk
Foreign currency liabilities
Forward contracts
198

Royal Bank of Canada: Annual Report 2023

Hedge
ineffectivenessrecognized inincome (1)Changes in the value ofthe hedging instrument
recognized in OCI

Amount reclassified
from hedge reserves
to income

n.a.
n.a.

n.a.
n.a.
(3,121)
3,045

1,385 $
(205)

(60)
71

(2,232)
2,416

7 $
(11)

(3,930) $
4,498

(50)

–

(44)

(37)

(684)
(828)

–
–

(684)
(828)

–
(191)

Consolidated Financial Statements

For the year ended October 31, 2022

(Millions of Canadian dollars)

Fair value hedges
Interest rate risk
Interest rate contracts – fixed rate assets
Interest rate contracts – fixed rate liabilities
Cash flow hedges
Interest rate risk
Interest rate contracts – variable rate assets
Interest rate contracts – variable rate liabilities
Foreign exchange risk
Cross currency swap – fixed rate assets
Net investment hedges
Foreign exchange risk
Foreign currency liabilities
Forward contracts
(1)
n.a.

Hedge
ineffectivenessrecognized inincome (1)Changes in the value ofthe hedging instrument
recognized in OCI

Amount reclassified
from hedge reserves
to income

3,650 $
(5,713)

(45)
29

n.a.
n.a.

n.a.
n.a.

(4,698)6,713(36) $
37(4,432) $
6,673

(185)
(118)

17

–

23

17

(1,771)
(159)

(3)
–

(1,768)
(159)

–
(23)

Change in fair valueof hedging
instrument$

Hedge ineffectiveness recognized in income included gains of $3 million that are excluded from the assessment of hedge effectiveness and are offset by economic
hedges (October 31, 2022 – losses of $19 million).
not applicable

Reconciliation of components of equity
The following table provides a reconciliation by risk category of each component of equity and an analysis of othercomprehensive income relating to hedge accounting:(Millions of Canadian dollars)

Balance at the beginning of the year
Cash flow hedges
Effective portion of changes in fair value:Interest rate risk
Foreign exchange risk
Equity price risk
Net amount reclassified to profit or loss:
Ongoing hedges:
Interest rate risk
Foreign exchange risk
Equity price risk
De-designated hedges:
Interest rate risk
Hedges of net investment in foreign operations
Foreign exchange denominated debt
Forward foreign exchange contracts
Foreign currency translation differences forforeign operations
Reclassification of losses (gains) on foreign
currency translation to income
Reclassification of losses (gains) on net
investment hedging activities to income
Tax on movements on reserves during theperiod$Balance at the end of the year$

For the year ended October 31, 2023

For the year ended October 31, 2022

Cash flow hedge
reserve

Cash flow hedge
reserve

2,394

Foreign currencytranslation reserve

$

5,688

$

566

568
(44)
(119)

2,241
23
(1)

(377)
37
93

(227)
(17)
(23)

453

530

(249)
2,756

$

2,055

(684)
(828)

(1,768)
(159)

2,164

5,085

(160)

(18)

191

23

241
$

Foreign currencytranslation reserve

6,612

Consolidated Financial Statements

(698)
$

2,394

470
$

Royal Bank of Canada: Annual Report 2023

5,688

199

Note 10Premises and equipment
For the year ended October 31, 2023

Owned by the Bank (1)(Millions of Canadian dollars)

Cost
Balance at beginning of period
Additions
Acquisition through businesscombination
Transfers from work inprocess
Disposals
Foreign exchange translation
Other
Balance at end of period
Accumulated depreciation
Balance at beginning of period
Depreciation
Disposals
Foreign exchange translation
Other

Right-of-use lease assets

Furniture,
fixtures
Computer and other
LeaseholdLand Buildings equipment equipment improvements$ 141 $–

Work inprocess

Buildings

Equipment

Total

1,261 $–

1,169 $
32

836 $
12

2,845 $
29

120 $
511

5,748 $
385

–

–

–

–

–

–

–

–

–

–
–
1
(2)

19
(53)
6
18

246
(216)
22
30

62
(96)
9
12

187
(78)
32
(8)

(514)
(2)
1
(8)

–
(331)
103
(12)

–
(31)
–
(31)

–
(807)
174
(1)

1,251 $

1,283 $

835 $

3,007 $

108 $

5,893 $

317 $ 12,834$ 140 $

299 $ 12,419
80
1,049

$

– $
–
–
–
–

627 $
51
(50)
3
15

640 $
247
(216)
16
36

525 $
91
(88)
6
16

1,656 $
235
(70)
16
26

– $
–
–
–
–

1,643 $
559
(112)
31
28

114 $
92
(31)
–
(21)

5,205
1,275
(567)
72
100

Balance at end of period

$

– $

646 $

723 $

550 $

1,863 $

– $2,149 $

154 $

6,085

Net carrying amount at end of
period$ 140 $

605 $

560 $

285 $

1,144 $

108 $

3,744 $

163 $

6,749

For the year ended October 31, 2022

Owned by the Bank (1)Land(Millions of Canadian dollars)

Furniture,
fixtures
Computer and other
Buildings equipment equipment

Cost
Balance at beginning of period $ 145 $Additions–
Acquisition through businesscombination–
Transfers from work in process–
Disposals(10)
Foreign exchange translation
7
Other
(1)
Balance at end of period
Accumulated depreciation
Balance at beginning of period
Depreciation
Disposals
Foreign exchange translation
Other$ 141 $

Right-of-use lease assets

Leaseholdimprovements

Work inprocess

Buildings

Equipment

Total

1,308 $–

1,126 $
24

773 $
3

2,754 $
28

170 $
397

5,394 $
270

308 $ 11,978
138
860

–
15
(83)
24
(3)

4
195
(195)
17
(2)

1
49
(5)
15
–

6
206
(205)
67
(11)

1
(465)
(1)
6
12

55
–
(153)
58
124

–
–
(146)
(1)
–

1,261 $

1,169 $

836 $

2,845 $

120 $

5,748 $

299 $ 12,419

67
–
(798)
193
119

$

– $
–
–
–
–

664 $
48
(80)
11
(16)

584 $
234
(192)
12
2

427 $
94
(4)
6
2

1,589 $
233
(204)
38
–

– $
–
–
–
–

1,133 $
569
(106)
2
45

157 $
87
(146)
(1)
17

4,554
1,265
(732)
68
50

Balance at end of period

$

– $

627 $

640 $

525 $

1,656 $

– $1,643 $

114 $

5,205

Net carrying amount at end of
period$ 141 $

634 $

529 $

311 $

1,189 $

120 $

4,105 $

185 $

7,214

(1)

As at October 31, 2023, we had total contractual commitments of $120 million to purchase premises and equipment (October 31, 2022 – $185 million).

Lease payments
Total lease payments for the year ended October 31, 2023 were $1,326 million, of which $655 million or 49% relates to variable
payments and $671 million or 51% relates to fixed payments. Total lease payments for the year ended October 31, 2022 were$1,213 million, of which $578 million or 48% relates to variable payments and $635 million or 52% relates to fixed payments.
Total variable lease payments not included in the measurement of lease liabilities were $647 million for the year ended
October 31, 2023 (October 31, 2022 – $571 million).

200

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Note 11

Goodwill and other intangible assets

Goodwill
For the year ended October 31, 2023

Canadian dollars)

U.S. WealthManagement International
Canadian
Wealth(including
Wealth Global Asset
Canadian Caribbean
Banking
Banking Management Management City National) Management

Balance at beginningof period
Acquisitions
Dispositions
Currency translations$ 2,574 $ 1,759 $
70
–
–
–
–
32

589 $
–
–
4

1,928 $––
88

3,027 $––
53

1,042 $
–
–
82

59 $
–
(30)
–

112 $
–
–
–

1,187 $ 12,277
–
70
–
(30)
18
277

Balance at end of
period$ 2,644 $ 1,791 $593 $2,016 $

3,080 $

1,124 $

29 $

112 $

1,205 $ 12,594(Millions ofInvestor
Services Insurance

CapitalMarkets

Total

For the year ended October 31, 2022

(Millions ofCanadian dollars)

U.S. WealthManagement International
Canadian
WealthInvestor(including
Wealth Global Asset
Canadian Caribbean
CapitalBanking
Banking Management Management City National) Management Services (1) Insurance Markets (1)Balance at beginningof period
Acquisitions
Dispositions
Currency translations$ 2,557 $17––

1,600 $
–
–
159

577 $
–
–
12

1,964 $
33–
(69)

2,768 $
–
(19)
278

115 $
880
–
47

60 $
–
–
(1)

112 $
–
–
–

1,101 $ 10,854
–
930
–
(19)
86
512

Balance at end of
period$ 2,574 $

1,759 $

589 $

1,928 $

3,027 $

1,042 $

59 $

112 $

1,187 $ 12,277

(1)

Total

Amounts have been revised from those previously presented to conform to our new basis of segment presentation. Refer to Note 27 for further details of our businesssegments.

We perform our annual impairment test by comparing the carrying amount of each CGU to its recoverable amount. The
recoverable amount of a CGU is represented by its VIU, except in circumstances where the carrying amount of a CGU exceeds its
VIU. In such cases, the greater of the CGU’s FVLCD and its VIU is the recoverable amount. Our annual impairment test is
performed as at August 1.
In our 2023 annual impairment tests, the recoverable amount of our Caribbean Banking CGU was based on its FVLCD and therecoverable amounts of all other CGUs tested were based on their VIU. In our 2022 annual impairment tests, the recoverable
amounts of the Caribbean Banking CGU and International Wealth Management CGU were based on their FVLCD and therecoverable amounts of all other CGUs tested were based on their VIU.

Value in use
We calculate VIU using a five-year discounted cash flow method, with the exception of our International Wealth Management
CGU where cash flow projections covering a seven-year period were used, which more closely aligns with the strategic growthplan resulting from the acquisition of RBC Brewin Dolphin. Future cash flows are based on financial plans agreed bymanagement, estimated based on forecast results, business initiatives, capital required to support future cash flows and returns
to shareholders. Key drivers of future cash flows include net interest margins and average interest-earning assets. The values
assigned to these drivers over the forecast period are based on past experience, external and internal economic forecasts, andmanagement’s expectations of the impact of economic conditions on our financial results. Beyond the initial cash flow projection
period, cash flows are assumed to increase at a constant rate using a nominal long-term growth rate (terminal growth rate).
Terminal growth rates are based on the long-term steady state growth expectations in the countries within which the CGU
operates. The discount rates used to determine the present value of each CGU’s projected future cash flows are based on the
bank-wide cost of capital, adjusted for the risks to which each CGU is exposed. CGU-specific risks include: country risk, business/
operational risk, geographic risk (including political risk, devaluation risk, and government regulation), currency risk, and pricerisk (including product pricing risk and inflation).
The estimation of VIU involves significant judgment in the determination of inputs to the discounted cash flow model and ismost sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond theforecast period. The sensitivity of the VIU to key inputs and assumptions used was tested by recalculating the recoverable
amount using reasonably possible changes to those parameters. As at August 1, 2023, no reasonably possible change in an
individual key input or assumption, as described, would result in a CGU’s carrying amount exceeding its recoverable amountbased on VIU.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

201

Note 11

Goodwill and other intangible assets (continued)

The terminal growth rates and pre-tax discount rates used in our discounted cash flow models are summarized below.
As at
August 1, 2023

Group of cash generating units
Canadian Banking
Caribbean Banking
Canadian Wealth Management
Global Asset Management
U.S. Wealth Management (including City National)International Wealth Management (2)Investor Services
Insurance
Capital Markets

August 1, 2022

Discount
rate (1)Terminal
growthrate

Discount
rate (1)Terminal
growth
rate

11.7%
12.9
12.5
12.5
12.5
12.5
12.4
12.4
12.7

3.0%
3.5
3.0
3.0
3.0
3.0
3.0
3.0
3.0

11.0%
12.6
11.8
11.8
12.8
n.m.
11.8
11.6
12.4

3.0%
3.5
3.0
3.0
3.0
n.m.
3.0
3.0
3.0

(1)
Pre-tax discount rates are determined implicitly based on post-tax discount rates.
(2)
The recoverable amount for our International Wealth Management CGU was determined using a multiples-based approach in 2022.
n.m. not meaningful

Fair value less costs of disposal – Caribbean Banking
As at August 1, 2023, the recoverable amount of our Caribbean Banking CGU, based on FVLCD, was 109% of its carrying amount(August 1, 2022 – 109%). We calculated FVLCD using a discounted cash flow method that projects future cash flows over a 5-year
period. Cash flows are based on management forecasts, adjusted to approximate the considerations of a prospective third-party
buyer. Cash flows beyond the initial 5-year period are assumed to increase at a constant rate using a nominal long-term growthrate. Future cash flows, terminal growth rates, and discount rates are based on the same factors noted above. The forecast
future cash flows were discounted using a pre-tax rate of 12.9% (August 1, 2022 – 12.6%), reflecting a higher interest rateenvironment. This fair value measurement is categorized as level 3 in the fair value hierarchy as certain significant inputs are notobservable. We use significant judgment to determine inputs to the discounted cash flow model, which is most sensitive tochanges in future cash flows, discount rates and terminal growth rates.
We considered reasonably possible alternative scenarios, including market comparable transactions, which yielded
valuations ranging from an immaterial deficit to an immaterial surplus. The sensitivity of the FVLCD to key inputs andassumptions was tested by recalculating the recoverable amount using reasonably possible changes to those parameters. A
50 bps change in the terminal growth rate would increase and decrease the recoverable amount by $235 million and $209 million,
respectively. A 50 bps increase in the discount rate would decrease the recoverable amount by $278 million. A reduction in theforecasted cash flows of 10% per annum would reduce the recoverable amount by $485 million. If future cash flows were reduced
by 8%, the recoverable amount would approximate the carrying amount. Changes in these assumptions have been applied
holding other individual factors constant. However, changes in one factor may be magnified or offset by related changes in otherassumptions as impacts to the recoverable amount are highly interdependent and changes in assumptions may not have a linear
effect on the recoverable amount of the CGU. In aggregate, the range of reasonably possible outcomes would not materiallyaffect the recoverable amount of the CGU.

202

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Other intangible assets
For the year ended October 31, 2023

Internallygenerated
softwareOther
softwareCore
depositintangibles

Customerlist andrelationships

In process
software

$

5,076
81
–
1,067
(509)
(73)
68
(115)

$

908
179
31
78
(145)
–
17
29

$

1,630
–
–
–
–
–
28
–

$

2,472
–
–
–
(160)
(9)
144
9

$

1,535
1,134
–
(1,145)
8
(5)
38
(33)

$

11,621
1,394
31
–
(806)
(87)
295
(110)

$

5,595

$ 1,097

$

1,658

$

2,456

$

1,532

$

12,338$(3,031)(1,009)
506
(19)
(37)
(7)

$

(612)
(146)
157
–
(13)
(44)

$

(1,146)
(160)
–
–
(24)
–

$

(749)
(172)
114
–
(33)
(6)

$

–
–
–
–
–
–

$

(5,538)(1,487)
777
(19)
(107)
(57)

Balance at end of period$(3,597)

$

(658)

$

(1,330)

$

(846)

$

–

$

(6,431)

Net balance at end of period

$

1,998

$

439

$

328

$

1,610

$

1,532

$

5,907

(Millions of Canadian dollars)Internallygenerated
softwareOther
softwareCore
depositintangibles

$

4,886
25
–
1,121
(960)
(16)
71
(51)

$

894
16
14
76
(111)
–
48
(29)

$

1,474
–
–
–
–
–
149
7

$

1,414
–
1,292
–
(329)
–
113
(18)

$

1,236
1,256
148
(1,197)
(5)
(11)
30
78

$

9,904
1,297
1,454
–
(1,405)
(27)
411
(13)

$

5,076

$

908

$

1,630

$

2,472

$

1,535

$

11,621$(2,979)
(976)
959
9
(36)
(8)

$

(572)
(137)
109
–
(31)
19

$

(885)
(153)
–
–
(98)
(10)

$

(997)
(103)
315
–
13
23

$

–
–
–
–
–
–

$

(5,433)(1,369)
1,383
9
(152)
24

Balance at end of period$(3,031)

$

(612)

$

(1,146)

$

(749)

$

–

$

(5,538)Net balance at end of period

$

2,045

$

296

$

484

$

1,723

$

1,535

$

6,083

(Millions of Canadian dollars)

Gross carrying amount
Balance at beginning of period
Additions
Acquisition through business combination
Transfers
Dispositions
Impairment losses
Currency translations
Other changes
Balance at end of period
Accumulated amortization
Balance at beginning of period
Amortization charge for the year
Dispositions
Impairment losses
Currency translations
Other changes

Total

For the year ended October 31, 2022

Gross carrying amount
Balance at beginning of period
Additions
Acquisition through business combination
Transfers
Dispositions
Impairment losses
Currency translations
Other changes
Balance at end of period
Accumulated amortization
Balance at beginning of period
Amortization charge for the year
Dispositions
Impairment losses
Currency translations
Other changes

Customerlist andrelationships

In process
software

Total

Note 12 Joint ventures and associated companies
We do not have any joint ventures or associated companies that are individually material to our financial results. The following
table summarizes the carrying value of our interests in joint ventures and associated companies accounted for under the equity
method as well as our share of the income of those entities.
Joint ventures

Associated companies

As at and for the year ended
October 31

October 31

October 31

$

2022
248

$

2023
286

$

2022
463

$

103

$

5

$

7

Carrying amount

$

2023
215

Share of:
Net income (1)$18(Millions of Canadian dollars)(1)

October 31

Excludes impairment losses recognized on our interests in joint ventures and associated companies. During the year ended October 31, 2023, we recognized impairment
losses of $242 million in Non-interest income – Income (loss) from joint ventures and associates with respect to our interest in an associated company in our WealthManagement segment (October 31, 2022 – $nil).

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

203

Note 13 Other assets
As at
October 31

Accounts receivable and prepaids
Accrued interest receivable
Cash collateral
Commodity trading receivables
Deferred income tax asset
Employee benefit assets
Held-for-sale assets
Insurance-related assets
Collateral loans
Policy loans
Reinsurance assets
Other
Investments in joint ventures and associates
Margin deposits
Precious metals
Receivable from brokers, dealers and clients
Taxes receivable
Other

$

4,373
7,775
20,104
5,979
2,446
2,826
2,562

2022
$

528
87
1,127
13
501
8,849
2,753
2,834
8,908
5,403
$

Note 14

October 31

2023(Millions of Canadian dollars)

77,0684,250
4,703
25,634
7,054
1,472
3,331
11
524
85
1,084
12
711
14,684
1,772
3,299
6,933
4,741

$

80,300Total Demand (1) Notice (2)Term (3)441,946 $ 203,645 $ 64,743 $ 136,544 $
745,075
348,004
17,855394,01144,666
10,458490
33,064

Total
404,932
759,870
44,012

Deposits
As at
October 31, 2023

October 31, 2022

(Millions of Canadian dollars)
Demand (1) Notice (2)Term (3)Personal$ 186,530 $ 57,614 $ 197,802 $Business and government
316,200
19,056
409,819
Bank
7,996
769
35,901$ 510,726 $ 77,439 $ 643,522 $ 1,231,687 $ 562,107 $ 83,088 $ 563,619 $ 1,208,814
Non-interest-bearing (4)CanadaUnited States
Europe (5)Other International
Interest-bearing (4)CanadaUnited States
Europe (5)Other International$ 132,994 $
40,64617
7,265
302,746
16,2105,353
5,495

6,107 $–––
14,64155,895
726
70

168 $
–
–
–
493,347
78,83751,812
19,358139,269 $ 149,737 $
40,64652,702
17
620
7,265
7,840

7,797 $–––

810,734
150,942
57,891
24,923

17,982
57,055
254–

305,779
11,41028,276
5,743

466 $
–
–
–
409,586
85,111
52,144
16,312

158,000
52,702
620
7,840
733,347
153,576
80,67422,055$ 510,726 $ 77,439 $ 643,522 $ 1,231,687 $ 562,107 $ 83,088 $ 563,619 $ 1,208,814
(1)
(2)
(3)
(4)

(5)

Demand deposits are deposits for which we do not have the right to require notice of withdrawal, which include both savings and chequing accounts.
Notice deposits are deposits for which we can legally require notice of withdrawal. These deposits are primarily savings accounts.
Term deposits are deposits payable on a fixed date, and include term deposits, guaranteed investment certificates and similar instruments.
The geographical splits of the deposits are based on the point of origin of the deposits and where the revenue is recognized. As at October 31, 2023, deposits
denominated in U.S. dollars, British pounds, Euro and other foreign currencies were $445 billion, $34 billion, $49 billion and $32 billion, respectively (October 31, 2022 –$465 billion, $35 billion, $50 billion and $30 billion, respectively).
Europe includes the United Kingdom, the Channel Islands, France and Luxembourg.

Contractual maturities of term deposits
As at(Millions of Canadian dollars)Within 1 year:
less than 3 months
3 to 6 months
6 to 12 months
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Over 5 years
Aggregate amount of term deposits in denominations of one hundred thousand dollars or more

204

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

October 31

October 31

2023

2022

$ 182,373
69,868151,079
76,232
49,96536,77436,506
40,725$ 643,522$$

159,602
61,996
156,531
49,22542,80927,60933,83532,012563,619$ 586,000$

521,000

Average deposit balances and average rates of interest
For the year ended
October 31, 2023

Averagebalances
913,669
196,490
70,42631,035

Average
rates
3.02%
2.74
4.22
2.26

$ 1,211,620

3.03%(Millions of Canadian dollars, except for percentage amounts)

CanadaUnited States
EuropeOther International$

October 31, 2022$

Averagebalances
847,052
207,436
81,824
28,613

Average
rates
1.02%
0.50
1.03
0.72

$

1,164,925

0.92%Note 15 Insurance
Risk management
Insurance risk is the risk of fluctuations in the timing, frequency or severity of insured events, relative to our expectations at thetime of underwriting. We do not have a high degree of concentration risk due to our geographic diversity and business mix.
Concentration risk is not a major concern for the life insurance business as it does not have a material level of region-specificcharacteristics. Reinsurance is also used for a majority of our Canadian insurance business to lower our risk profile and limit theliability on a single claim. We manage underwriting and pricing risk through the use of underwriting guidelines which detail theclass, nature and type of business that may be accepted, pricing policies by product line and controls over policy wordings. The
risk that claims are handled or paid inappropriately is mitigated by using a range of information technology (IT) system controls
and manual processes conducted by experienced staff. These, together with a range of detailed policies and procedures, ensurethat all claims are handled in a timely, appropriate and accurate manner.
Reinsurance ceded
In the ordinary course of business, our insurance operations reinsure risks to other insurance and reinsurance companies inorder to lower our risk profile, limit loss exposure to large risks, and provide additional capacity for future growth. These cedingreinsurance arrangements do not relieve our insurance subsidiaries from our direct obligations to the insured parties. We
evaluate the financial condition of the reinsurers and monitor our concentrations of credit risks to minimize our exposure tolosses from reinsurer insolvency. Reinsurance amounts (ceded premiums) included in Non-interest income are shown in thetable below.
Net premiums and claims
For the year ended(Millions of Canadian dollars)

October 31

October 31

2023

2022

Gross premiums
Premiums ceded to reinsurers$

5,428 $
(297)

4,913
(260)

Net premiums$

5,131 $

4,653

Gross claims and benefits (1)Reinsurers’ share of claims and benefits$

3,960 $
(261)

1,741
(273)

Net claims$

3,699 $

1,468

(1)

Includes the change in fair value of investments backing our policyholder liabilities.

Insurance claims and policy benefit liabilities
All actuarial assumptions are set in conjunction with Canadian Institute of Actuaries Standards of Practice and OSFI
requirements. The assumptions that have the greatest effect on the measurement of insurance liabilities, the processes used todetermine them and the assumptions used as at October 31, 2023 are as follows:Mortality and morbidity – Mortality estimates are based on standard industry insured mortality tables, adjusted whereappropriate to reflect our own experience. Morbidity assumptions are made with respect to the rates of claim incidence andclaim termination for health insurance policies and are based on a combination of industry and our own experience.
Future investment yield – Assumptions are based on the current yield rate, a reinvestment assumption and an allowance for
future credit losses for each line of business, and are developed using interest rate scenario testing, including prescribedscenarios for determination of minimum liabilities as set out in the actuarial standards.
Policyholder behaviour – Under certain policies, the policyholder has a contractual right to change benefits and premiums, aswell as convert policies to permanent forms of insurance. All policyholders have the right to terminate their policies throughlapse. Lapses represent the termination of policies due to non-payment of premiums. Lapse assumptions are primarily based on
our recent experience adjusted for emerging industry experience where applicable.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

205

Note 15 Insurance (continued)
Significant insurance assumptions
As at
October 31

October 31

2023

2022

0.11%
1.79
3.73
0.50

0.11%
1.81
3.75
0.50

0.83
2.90

0.80
2.90

Life Insurance
Canadian Insurance
Mortality rates (1)Morbidity rates (2)Future reinvestment yield (3)Lapse rates (4)International Insurance
Mortality rates (1)Future reinvestment yield (3)
(1)
(2)
(3)
(4)

Average annual death rate for the largest portfolio of insured policies.
Average net termination rate for the individual and group disability insurance portfolio.
Ultimate reinvestment rate of the insurance operations.
Ultimate policy termination rate (lapse rate) for the largest permanent life insurance portfolio that relies on a higher termination rate to maintain its profitability(lapse-supported policies).

Insurance claims and policy benefit liabilities
The following table summarizes our gross and reinsurers’ share of insurance liabilities at the end of the year.
As at
October 31, 2023

Life insurance policyholder liabilities
Life, health and annuity
Investment contracts (1)Non-life insurance policyholder liabilities
Unearned premium provision (1)Unpaid claims provision(1)

October 31, 2022

Gross

Ceded

$

11,934
38

$

968 $
–

10,96638$

11,972

$

968 $

$

9
32

$

– $
1

$

41

$

$

12,013$(Millions of Canadian dollars)

Net

Gross

Ceded

Net

$

11,48141$ 902 $–

10,57941

11,004$

11,522$ 902 $

10,620

9
31

$

7
30

$

– $
1

1 $

40

$

37

$

1 $

36

969 $

11,044$

11,559$ 903 $

10,656

7
29

Liabilities for investment contracts and unearned premium provision are reported in Other liabilities on the Consolidated Balance Sheets.

Reconciliation of life insurance policyholder liabilities
For the year ended
October 31, 2023
(Millions of Canadian dollars)

Balances at beginning of period
New and in-force policies (1)Changes in assumption and methodology
Net change in investment contracts$

Balances at end of period$(1)

October 31, 2022

Gross
11,522
552
(99)
(3)

Ceded
Net
$ 902 $ 10,620 $
30
522
36
(135)
–
(3)

Gross
12,817(1,288)
(6)
(1)

Ceded
$ 861 $
(130)
171
–

Net
11,956(1,158)(177)(1)

11,972$

11,522$ 902 $

10,620968 $ 11,004$

Includes the change in fair value of investments backing our policyholder liabilities.

The net increase in life insurance policyholder liabilities over the prior year was primarily attributable to business growthpartially offset by asset and liability matching activities and market movements on assets backing life insurance policyholder
liabilities. During the year, we reviewed all key actuarial methods and assumptions which are used in determining the life
insurance policyholder liabilities resulting in a $135 million net decrease to such liabilities. This is primarily comprised of adecrease of $170 million arising from insurance risk related assumption updates largely due to mortality assumptions, partially
offset by increases of $15 million due to changes to valuation models and related data and $14 million due to an increase in thecrediting rate on universal life insurance policies.

206

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Sensitivity analysis
The following table presents the sensitivity of the level of insurance policyholder liabilities disclosed in this note to reasonably
possible changes in the actuarial assumptions used to calculate them. The percentage change in each variable is applied to arange of existing actuarial modelling assumptions to derive the possible impact on net income. The analyses are performed
where a single assumption is changed while holding other assumptions constant, which is unlikely to occur in practice.
Net income impact
for the year ended

1%
1
10
10
5

Increase in market interest rates (1)Decrease in market interest rates (1)Increase in equity market values (2)Decrease in equity market values (2)Increase in maintenance expenses (3)Life Insurance (3)Adverse change in annuitant mortality rates
Adverse change in assurance mortality rates
Adverse change in morbidity rates
Adverse change in lapse rates
(1)

(2)
(3)

October 31

Change invariable(Millions of Canadian dollars, except for percentage amounts)

$

2
2
5
10

October 31

2023
1
7
2
(8)
(32)

$

(177)
(54)
(177)
(192)

2022
(10)
5
6
(10)
(33)
(166)
(59)
(181)
(199)

Sensitivities for market interest rates include the expected current period earnings impact of a 100 basis points shift in the yield curve by increasing the current
reinvestment rates while holding the assumed ultimate rates constant. The sensitivity consists of both the impact on assumed reinvestment rates in the actuarial
liabilities and any changes in fair value of assets and liabilities from the yield curve shift.
Sensitivities to changes in equity market values are composed of the expected current period earnings impact from differences in the changes in fair value of the equity
asset holdings and the partially offsetting impact on the actuarial liabilities.
Sensitivities to changes in maintenance expenses and life insurance actuarial assumptions include the expected current period earnings impact from recognition ofincreased liabilities due to an adverse change in the given assumption over the lifetime of all in-force policies.

Note 16Segregated funds

We offer certain individual variable insurance contracts that allow policyholders to invest in segregated funds. The investment
returns on these funds are passed directly to the policyholders. Amounts invested are at the policyholders’ risk, except where thepolicyholders have selected options providing maturity and death benefit guarantees. A liability for the guarantees is recorded inInsurance claims and policy benefit liabilities.
Segregated fund net assets are recorded at fair value. All of our segregated fund net assets are categorized as Level 1 in thefair value hierarchy. The fair value of the segregated fund liabilities is equal to the fair value of the segregated fund net assets.
Segregated fund net assets and segregated fund liabilities are presented on separate lines on the Consolidated Balance Sheets.
The following tables present the composition of net assets and the changes in net assets for the year.
Segregated fund net assets
As at
October 31

October 31

2023

2022

$

40 $
2,719
1

39
2,598
1

$

2,760 $

2,638

(Millions of Canadian dollars)

Cash
Investment in mutual funds
Other assets (liabilities), net

Changes in net assets
For the year ended(Millions of Canadian dollars)

Net assets at beginning of period
Additions (deductions):
Deposits from policyholders
Net realized and unrealized gains (losses)
Interest and dividends
Payment to policyholders
Management and administrative fees$

Net assets at end of period$

October 31

October 31

2023

2022

2,638

$

734
52
76
(668)
(72)

Consolidated Financial Statements

2,760

2,666
859
(301)
56
(573)
(69)

$

Royal Bank of Canada: Annual Report 2023

2,638

207

Note 17 Employee benefits – Pension and other post-employment benefits
Plan characteristics
We sponsor a number of programs that provide pension and post-employment benefits to eligible employees. The majority of
beneficiaries of the pension plans are located in Canada and other beneficiaries of the pension plans are primarily located in the
U.S., the U.K. and the Caribbean. The pension arrangements including investment, plan benefits and funding decisions aregoverned by local pension committees or trustees, who are legally segregated from the Bank, or management. Significant planchanges require the approval of the Board of Directors.
Our defined benefit pension plans provide pension benefits based on years of service, contributions and average earnings at
retirement. Our primary defined benefit pension plans are closed to new members. New employees are generally eligible to join
defined contribution pension plans. The specific features of these plans vary by location. We also provide supplemental
non-registered (non-qualified) pension plans for certain executives and senior management that are typically unfunded or
partially funded.
Our defined contribution pension plans provide pension benefits based on accumulated employee and Bank contributions.
The Bank contributions are based on a percentage of an employee’s annual earnings and a portion of the Bank contribution may
be dependent on the amount being contributed by the employee and their years of service.
Our primary other post-employment benefit plans provide health, dental, disability and life insurance coverage and cover anumber of current and retired employees who are mainly located in Canada. These plans are unfunded unless required bylegislation.
We measure our benefit obligations and pension assets as at October 31 each year. All plans are valued using the projected
unit-credit method. We fund our registered defined benefit pension plans in accordance with actuarially determined amounts
required to satisfy employee benefit obligations under current pension regulations. For our principal pension plan, the mostrecent funding actuarial valuation was completed on January 1, 2023, and the next valuation is required no later thanJanuary 1, 2026.
For the year ended October 31, 2023, total contributions to our pension plans (defined benefit and defined contributionplans) and other post-employment benefit plans were $346 million and $80 million (October 31, 2022 – $427 million and$79 million), respectively. For 2024, total contributions to our pension plans and other post-employment benefit plans are
expected to be $408 million and $86 million, respectively.
Risks
By their design, the defined benefit pension and other post-employment benefit plans expose the Bank to various risks such as
investment performance, reductions in discount rates used to value the obligations, increased longevity of plan members, future
inflation levels impacting future salary increases as well as future increases in healthcare costs. These risks will reduce over time
due to the membership closure of our primary defined benefit pension plans and migration to defined contribution pension plans.
The following table presents the financial position related to all of our material pension and other post-employment benefit plansworldwide, including executive retirement arrangements.
As at
October 31, 2023

October 31, 2022

Defined benefit
pension plans

Other postemployment
benefit plans

Defined benefit
pension plans

Other postemployment
benefit plans

CanadaFair value of plan assets
Present value of defined benefit obligation$

13,704
11,142

$

–
1,348

$

14,31011,271$–
1,387

Net surplus (deficit)

$

2,562

$

(1,348) $

3,039

$

(1,387)

International
Fair value of plan assets
Present value of defined benefit obligation

$

664
585

$

–
69

$

716
622

$

–
75

Net surplus (deficit)

$

79

$

(69) $

94

$

(75)

Total
Fair value of plan assets
Present value of defined benefit obligation$

14,368
11,727

$

–
1,417

$

15,026
11,893$–
1,462

Total net surplus (deficit)

$

2,641

$

(1,417) $

3,133

$

(1,462)(Millions of Canadian dollars)

Effect of asset ceiling

(9)

–

(8)

–

Total net surplus (deficit), net of effect of asset ceiling

$

2,632

$

(1,417) $

3,125

$

(1,462)

Amounts recognized in our Consolidated Balance Sheets
Employee benefit assets
Employee benefit liabilities$

2,826 $
(194)

– $(1,417)3,331 $
(206)–
(1,462)

Total net surplus (deficit), net of effect of asset ceiling

$

2,632

(1,417) $3,125(1,462)

208

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements$$

The following table presents an analysis of the movement in the financial position related to all of our material pension and otherpost-employment benefit plans worldwide, including executive retirement arrangements.
As at or for the year ended
October 31, 2023

(Millions of Canadian dollars)

Fair value of plan assets at beginning of period
Interest income
Remeasurements
Return on plan assets (excluding interest income)Change in foreign currency exchange rate
Contributions – Employer
Contributions – Plan participant
Payments
Payments – amount paid in respect of settlements
Business combinations/Disposals
Other

October 31, 2022

Defined benefit
pension plans (1)Other postemployment
benefit plans

Defined benefit
pension plans (1)Other postemployment
benefit plans

$

$

$

$

15,026
786

–
–

(895)
55
23
44
(645)
–
(17)
(9)

17,703
580

–
–
80
22
(102)
–
–
–

–
–

(2,931)
(62)
177
45
(610)
3
135
(14)

Fair value of plan assets at end of period$

14,368$–$–Benefit obligation at beginning of period
Current service costs
Past service costs
Gains and losses on settlements
Interest expense
Remeasurements
Actuarial losses (gains) from demographic
assumptions
Actuarial losses (gains) from financial assumptions
Actuarial losses (gains) from experience adjustments
Change in foreign currency exchange rate
Contributions – Plan participant
Payments
Payments – amount paid in respect of settlements
Business combinations/Disposals$

11,893
195
–
–
624

$

1,462 $
33
(2)
–
77

15,315 $
308
(1)
(3)
496

1,780
42
2
–
63

(24)
(46)
(1)
1
22
(102)
–
(3)

(2)
(3,797)
83
(47)
45
(610)
3
103

(1)
(341)
(9)
6
20
(99)
–
(1)

(2)
(480)
70
45
44
(645)
–
(17)

$

15,026

–
–
79
20
(99)
–
–
–

Benefit obligation at end of period$

11,727

$

1,417

$

11,893$

1,462

Unfunded obligation
Wholly or partly funded obligation$

18
11,709

$

1,417
–

$

23
11,870$1,462–

Total benefit obligation$

11,727

$

1,417

$

11,893

$

1,462

(1)

For pension plans with funding deficits, the benefit obligations and fair value of plan assets as at October 31, 2023 were $300 million and $106 million, respectively(October 31, 2022 – $323 million and $117 million, respectively).

Pension and other post-employment benefit expense
The following table presents the composition of our pension and other post-employment benefit expense related to our material
pension and other post-employment benefit plans worldwide.
For the year ended

Other post-employment
benefit plans

Pension plans
October 31(Millions of Canadian dollars)

October 31

October 31

October 31

2023
195 $
–
–
(162)
–
9

2022
308 $
(1)
(3)
(84)
–
14

2023
33 $
(2)
–
77
(1)
–

2022
42
2
–
63
(26)
–

Current service costs
Past service costs
Gains and losses on settlements
Net interest expense (income)Remeasurements of other long term benefits
Administrative expense$

Defined benefit pension expense
Defined contribution pension expense

$

42
323

$

234
250

$

107
–

$

81
–

$

365

$

484

$

107

$

81

Service costs for the year ended October 31, 2023 totalled $193 million (October 31, 2022 – $305 million) for pension plans in
Canada and $2 million (October 31, 2022 – $2 million) for International plans. Net interest expense (income) for the year ended
October 31, 2023 totalled $(157) million (October 31, 2022 – $(83) million) for pension plans in Canada and $(5) million(October 31, 2022 – $(1) million) for International plans.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

209

Note 17 Employee benefits – Pension and other post-employment benefits (continued)
Pension and other post-employment benefit remeasurements
The following table presents the composition of our remeasurements recorded in OCI related to our material pension and otherpost-employment benefit plans worldwide.
For the year ended(Millions of Canadian dollars)

Actuarial (gains) losses:
Changes in demographic assumptions
Changes in financial assumptions
Experience adjustments
Return on plan assets (excluding interest based on discount rate)
Change in asset ceiling (excluding interest income)Defined benefit pension
plans

Other post-employment
benefit plans

October 31

October 31

October 31

October 31

2023

2022

2023

2022

$

(2) $
(480)
70
895
1

(2) $
(3,797)832,9312(27) $
(45)
2
–
–

(1)
(319)
(5)
–
–

$

484

(783) $

(70) $(325)$

Remeasurements recorded in OCI for the year ended October 31, 2023 were losses of $440 million (October 31, 2022 – gains of$798 million) for pension plans in Canada and losses of $44 million (October 31, 2022 – losses of $15 million) for International
plans.
Investment policy and strategies
Defined benefit pension plan assets are invested prudently in order to meet our longer-term pension obligations. The pension
plans’ investment strategy is to hold a diversified mix of investments by asset class and geographic location in order to reduceinvestment-specific risk to the funded status while maximizing the expected returns to meet pension obligations. Investment of
the plan’s assets follows an asset/liability framework as investment is conducted with careful consideration of the pension
obligation’s sensitivity to interest rates and credit spreads which are key risk factors impacting the obligation’s value. Factors
taken into consideration in developing our asset mix include but are not limited to the following:•
the nature of the underlying benefit obligations, including the duration and term profile of the liabilities;•
the member demographics, including expectations for normal retirements, terminations, and deaths;•
the financial position of the pension plans;•
the diversification benefits obtained by the inclusion of multiple asset classes; and•expected asset returns, including asset and liability correlations, along with liquidity requirements of the plan.
To implement our asset mix policy, we may invest in debt securities, equity securities, and alternative investments. Our holdings
in certain investments, including common shares, debt securities rated lower than BBB and residential and commercial
mortgages, cannot exceed a defined percentage of the market value of our defined benefit pension plan assets. We may use
derivative instruments as either a synthetic investment to more efficiently replicate the performance of an underlying security, or
as a hedge against financial risks within the plan. To manage our credit risk exposure, where derivative instruments are notcentrally cleared, counterparties are required to meet minimum credit ratings and enter into collateral agreements.
Our defined benefit pension plan assets are primarily comprised of debt and equity securities and alternative investments.
Our equity securities generally have unadjusted quoted market prices in an active market (Level 1) and our debt securities
generally have quoted market prices for similar assets in an active market (Level 2). Alternative investments and other includes
cash, hedge funds, and private fund investments including infrastructure equity, real estate, private debt and private equity. In
the case of private fund investments, no quoted market prices are usually available (Level 2 or Level 3). These fund assets areeither valued by an independent valuator or priced using observable market inputs.
During the year ended October 31, 2023, the management of defined benefit pension investments focused on increased
allocation to risk reducing investments and strategies, improving diversification, while striving to maintain expected investment
return. Over time, an increasing allocation to debt securities is being used to reduce asset/liability duration mismatch and hence
variability of the plan’s funded status due to interest rate movement. Longer maturity debt securities, given their price sensitivity
to movements in interest rates, are considered to be a good economic hedge to risk associated with the plan’s liabilities, which
are discounted using predominantly long maturity bond interest rates as inputs.

210

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Asset allocation of defined benefit pension plans (1), (2)As at
October 31, 2023

(Millions of Canadian dollars, except percentages)

Equity securities
Domestic
Foreign
Debt securities
Domestic government bonds (4)Foreign government bonds
Corporate and other bonds
Alternative investments and other

Percentage
of totalplan assets

Quotedin active
market (3)

723
1,726

5%
12

100%
100

4,343
128
3,296
4,152

30
1
23
29

–
–
–
6

100%

19%

Fair value$$ 14,368
(1)
(2)
(3)
(4)

October 31, 2022

Percentage
of totalplan assets

Quotedin active
market (3)

1,469
2,799

10%
19

100%
100

3,489
114
3,171
3,984

23
1
21
26

–
–
–
8

100%

30%

Fair value$$ 15,026

The asset allocation is based on the underlying investments held directly and indirectly through the funds as this is how we manage our investment policy and strategies.
Represents the total plan assets held in our Canadian and International pension plans.
If our assessment of whether or not an asset was quoted in an active market was based on direct investments, 22% of our total plan assets would be classified as quoted
in an active market (October 31, 2022 – 34%).
Amounts are net of securities sold under repurchase agreements.

As at October 31, 2023, the plan assets include 0.3 million (October 31, 2022 – 0.7 million) of our common shares with a fairvalue of $37 million (October 31, 2022 – $89 million) and $62 million (October 31, 2022 – $48 million) of our debt securities. For theyear ended October 31, 2023, dividends received on our common shares held in the plan assets were $3 million (October 31, 2022 –$4 million).
Maturity profile
The following table presents the maturity profile of our defined benefit pension plan obligation.
As at October 31, 2023
(Millions of Canadian dollars, except participants and years)

Number of plan participants
Actual benefit payments 2023
Benefits expected to be paid 2024
Benefits expected to be paid 2025
Benefits expected to be paid 2026
Benefits expected to be paid 2027
Benefits expected to be paid 2028
Benefits expected to be paid 2029-2033
Weighted average duration of defined benefit payments

CanadaInternational

Total

65,890
$
604
670
694
717
738
757
4,013
12.2 years

5,963
$
41
44
40
42
42
42
226
15.1 years

71,853
$
645
714
734
759
780
799
4,239
12.3 years

Significant assumptions
Our methodologies to determine significant assumptions used in calculating the defined benefit pension and other postemployment benefit expense are as follows:

Discount rate
For the Canadian pension and other post-employment benefit plans, all future expected benefit payments at each measurement
date are discounted at spot rates from a derived Canadian AA corporate bond yield curve. The derived curve is based on actual
short and mid-maturity corporate AA rates and extrapolated longer term rates. The extrapolated corporate AA rates are derived
from observed corporate A, corporate AA and provincial AA yields. For the International pension and other post-employment
benefit plans, all future expected benefit payments at each measurement date are discounted at spot rates from a local AA
corporate bond yield curve. Spot rates beyond 30 years are set to equal the 30-year spot rate. The discount rate is the equivalent
single rate that produces the same discounted value as that determined using the entire discount curve. This valuation
methodology does not rely on assumptions regarding reinvestment returns.
Rate of increase in future compensation
The assumptions for increases in future compensation are developed separately for each plan, where relevant. Each assumption
is set based on the price inflation assumption and compensation policies in each market, as well as relevant local statutory andplan-specific requirements.
Healthcare cost trend rates
Healthcare cost calculations are based on both short and long term trend assumptions established using the plan’s recent
experience as well as market expectations.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

211

Note 17 Employee benefits – Pension and other post-employment benefits (continued)
Weighted average assumptions to determine benefit obligation
As at

Discount rate
Rate of increase in future compensation
Healthcare cost trend rates (1)– Medical– Dental(1)n.a.

Defined benefit pension
plans

Other post-employment
benefit plans

October 31

October 31

October 31

2023

2022

2023

2022

5.7%
3.0%

5.4%
3.0%

5.8%
n.a.

5.5%
n.a.

n.a.
n.a.

n.a.
n.a.

3.4%
3.1%

3.5%
3.1%

October 31

For our other post-employment benefit plans, the assumed trend rates used to measure the expected benefit costs of the defined benefit obligations are also theultimate trend rates.
not applicable

Mortality assumptions
Mortality assumptions are significant in measuring our obligations under the defined benefit pension plans. These assumptions
have been set based on country specific statistics. Future longevity improvements have been considered and included whereappropriate. The following table summarizes the mortality assumptions used for material plans.
As at
October 31, 2023

October 31, 2022

Life expectancy at 65 for a member currently at
Age 65

Age 45

Life expectancy at 65 for a member currently at
Age 65

Age 45(In years)

Male

FemaleMale

FemaleMale

FemaleMale

FemaleCountry
CanadaUnited Kingdom

23.9
23.5

24.3
25.4

24.8
24.7

25.2
26.8

23.9
23.4

24.2
25.4

24.8
24.7

25.1
26.8

Sensitivity analysis
Assumptions adopted can have a significant effect on the value of the obligations for defined benefit pension and other postemployment benefit plans and are based on historical experience and market inputs. The increase (decrease) in obligation in thefollowing table has been determined for key assumptions assuming all other assumptions are held constant. In practice, this isunlikely to occur, as changes in some of the assumptions may be correlated. The following table presents the sensitivity analysis
of key assumptions for 2023.
Increase (decrease)in obligation(Millions of Canadian dollars)Discount rate
Impact of 100 bps increase in discount rate
Impact of 100 bps decrease in discount rate
Rate of increase in future compensation
Impact of 50 bps increase in rate of increase in future compensation
Impact of 50 bps decrease in rate of increase in future compensation
Mortality rate
Impact of an increase in longevity by one additional year
Healthcare cost trend rate
Impact of 100 bps increase in healthcare cost trend rate
Impact of 100 bps decrease in healthcare cost trend rate
n.a. not applicable212

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Defined benefit
pension plans

Other postemployment
benefit plans$$(1,228)
1,536

(149)
184

23
(25)

–
–

289

18

n.a.
n.a.

50
(42)

Note 18 Other liabilities
As at(Millions of Canadian dollars)

Accounts payable and accrued expenses
Accrued interest payable
Cash collateral
Commodity liabilities
Deferred income
Deferred income taxes
Dividends payable
Employee benefit liabilities
Held-for-sale liabilities
Insurance related liabilities
Lease liabilities
Negotiable instruments
Payable to brokers, dealers and clients
Payroll and related compensation
Precious metals certificates
Provisions
Short-term borrowings of subsidiaries
Taxes payable
Other

$

$
Note 19

October 31

October 31

2023
1,599 $
10,93623,365
11,716
3,830
426
1,975
1,611
2,560
342
4,764
1,684
8,065
9,088
775
644
4,507
2,959
5,324
96,170 $

2022
1,292
5,019
26,143
10,038
3,660
439
1,856
1,668
–
324
5,110
1,715
10,974
8,991
557
627
9,609
2,136
5,077
95,235Subordinated debentures

The debentures are unsecured obligations and are subordinated in right of payment to the claims of depositors and certain othercreditors. The amounts presented below are net of our own holdings in these debentures, and include the impact of fair value
hedges used for managing interest rate risk.
(Millions of Canadian dollars, except percentage and foreign currency)
Maturity

June 8, 2023 (1)January 27, 2026 (2)November 1, 2027 (3)July 25, 2029 (2)December 23, 2029 (2)February 1, 2033 (2)June 30, 2030 (2)November 3, 2031 (2)May 3, 2032 (2)January 28, 2033 (2)October 1, 2083
June 29, 2085

Earliest par value
redemption dateNovember 1, 2022
July 25, 2024
December 23, 2024
February 1, 2028
June 30, 2025
November 3, 2026
May 3, 2027
January 28, 2028
Any interest payment date
Any interest payment date

As at

Denominated inforeign currency(millions)Interest
rate

9.30%
4.65%
4.75%
2.74% (4)2.88% (5)5.01% (6)2.09% (7)2.14% (8)2.94% (9)1.67% (10)US$1,500
TT$300

$

(11)
(12)

US$174$

Deferred financing costs

$
(1)
(2)

(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)

October 31

October 31

2023
– $
1,939
–
1,459
1,442
1,418
1,249
1,637
919
868
224
241
11,396 $(10)
11,386 $

2022
110
1,884
60
1,415
1,412
–
1,250
1,637
932
875
224
237
10,036(11)
10,025On June 8, 2023, all $110 million of outstanding 9.30% subordinated debentures matured. The principal plus accrued interest were paid to noteholders on the maturity date.
The notes include NVCC provisions, necessary for the notes to qualify as Tier 2 regulatory capital under Basel III. NVCC provisions require the conversion of the
instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly
announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is convertible into common shares pursuant to an automaticconversion formula with a multiplier of 1.5 and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common sharesbased on the volume weighted average trading price of our common shares on the Toronto Stock Exchange. The number of shares issued is determined by dividing thepar value of the note (including accrued and unpaid interest on such note) by the conversion price and then times the multiplier.
On November 1, 2022, we redeemed all TT$300 million of outstanding 4.75% subordinated debentures due on November 1, 2027 for 100% of their principal amount plus
interest accrued to, but excluding, the redemption date.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.98% above the 3-month CDOR.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.89% above the 3-month CDOR.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 2.12% above the Daily Compounded CORRA.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.31% above the 3-month CDOR.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.61% above the 3-month CDOR.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.76% above the 3-month CDOR.
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.55% above the 3-month CDOR.
Interest at a rate of 0.40% above the 30-day Bankers’ Acceptance rate.
Interest at a rate of 0.25% above the U.S. dollar 3-month London Interbank Mean Rate (LIMEAN) under a synthetic methodology. In the event of a reduction of the annual
dividend we declare on our common shares, the interest payable on the debentures is reduced pro rata to the dividend reduction and the interest reduction is payable
with the proceeds from the sale of newly issued common shares.

All redemptions, cancellations and exchanges of subordinated debentures are subject to the consent and approval of OSFI.
Maturity schedule
The aggregate maturities of subordinated debentures, based on the maturity dates under the terms of issue, are as follows:
As at
October 31(Millions of Canadian dollars)Within 1 year
1 to 5 years
5 to 10 years
Thereafter$$
Consolidated Financial Statements

2023
–
1,939
8,992
465
11,396

Royal Bank of Canada: Annual Report 2023

213

Note 20 Equity
Share capital
Authorized share capitalPreferred – An unlimited number of First Preferred Shares and Second Preferred Shares without nominal or par value, issuable inseries; provided that the maximum aggregate consideration for all First Preferred Shares outstanding at any time may not exceed$30 billion, and for all Second Preferred Shares that may be issued may not exceed $5 billion.
Common – An unlimited number of shares without nominal or par value may be issued.

Outstanding share capital
The following table details our common and preferred shares and other equity instruments outstanding.
As at and for the year ended
October 31, 2023

(Millions of Canadian dollars, except the numberof shares and as otherwise noted)

Common shares issued
Balance at beginning of period
Issued in connection with share-based
compensation plans (1)Issued in connection with dividend
reinvestment plan
Purchased for cancellation (2)Balance at end of period
Treasury – common shares
Balance at beginning of period (3)Purchases
Sales
Balance at end of period (3)Common shares outstanding
Preferred shares and other equity
instruments issued
First preferred (4)Non-cumulative, fixed rate
Series BH
Series BI
Non-cumulative, 5-Year Rate Reset
Series AZ
Series BB
Series BD
Series BF
Series BO
Series BT
Non-cumulative, fixed rate/floating rate
Series C-2 (5)Other equity instruments
Limited recourse capital notes (LRCNs) (6)Series 1 (7)Series 2 (7)Series 3 (7)Treasury – preferred shares and other
equity instruments
Balance at beginning of period (3)Purchases
Sales
Balance at end of period (3)Preferred shares and other equity
instruments outstanding
(1)
(2)
(3)
(4)

(5)
(6)
(7)

214

Number ofshares(thousands)

Amount1,385,591

October 31, 2022

Dividends
declared
per share

Number ofshares(thousands)

Amount$ 17,318

1,425,187$ 17,728

740

68

1,270

99

16,042–
1,402,373

2,012–$ 19,398

$

5.34

–
–
(40,866)(509)
1,385,591 $ 17,318(2,680) $(334)(30,195)(3,556)31,0133,659(662) $
(73)
(48,437)(5,183)
46,4194,922(1,862) $(231)
1,400,511 $ 19,167(2,680) $(334)
1,382,911 $ 16,984

6,000
6,000

$

150
150

$

Dividends
declared
per share

1.23
1.23

6,000
6,000

$

150
150

$

$

4.96

1.23
1.23

20,00020,00024,00012,00014,000
750

500
500
600
300
350
750

0.93
0.91
0.80
0.75
1.20
4.20%

20,00020,00024,00012,00014,000
750

500
500
600
300
350
750

0.93
0.91
0.80
0.75
1.20
4.20%

15

23

US$ 67.50

15

23

US$ 67.50

1,750
1,250
1,000
106,765

4.50%
4.00%
3.65%

1,750
1,250
1,000
106,765

$

1,750
1,250
1,000
7,323

4.50%
4.00%
3.65%

$

1,750
1,250
1,000
7,323

(12) $(1,924)
1,927

(5)
(519)
515

(164) $
(2,811)
2,963

(39)
(518)
552

(9) $

(9)

(12) $(5)

106,756$

7,314

106,753$

7,318

Includes fair value adjustments to stock options of $6 million (October 31, 2022 – $6 million).
During the year ended October 31, 2023, we did not purchase for cancellation any common shares. During the year ended October 31, 2022, we purchased for cancellationcommon shares at a total fair value of $5,426 million (average cost of $132.80 per share), with a book value of $509 million (book value of $12.47 per share).
Positive amounts represent a short position and negative amounts represent a long position.
First Preferred Shares were issued at $25 per share with the exception of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BT (Series BT) andNon-Cumulative Fixed Rate/Floating Rate First Preferred Shares Series C-2 (Series C-2) which were issued at $1,000 and US$1,000 per share (equivalent to US$25 per
depositary share), respectively.
On November 7, 2023, we redeemed all of our issued and outstanding Non-Cumulative Fixed Rate/Floating Rate First Preferred Shares Series C-2 for cash at a redemption
price of US$1,000 per share (equivalent to US$25 per depositary share).
Each series of LRCNs (LRCN Series) were issued at a $1,000 per note. The number of shares represent the number of notes issued and the dividends declared per sharerepresent the annual interest rate percentage applicable to the notes issued as at the reporting date.
In connection with the issuance of LRCN Series 1, we issued $1,750 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BQ (Series BQ); in
connection with the issuance of LRCN Series 2, we issued $1,250 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BR (Series BR); in connection
with the issuance of LRCN Series 3, we issued $1,000 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BS (Series BS). The Series BQ, BR and BS
preferred shares were issued at a price of $1,000 per share and were issued to a consolidated trust to be held as trust assets in connection with each respective
LRCN Series.
Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Significant terms and conditions of preferred shares and other equity instruments

As at October 31, 2023

Preferred sharesFirst preferred
Non-cumulative, fixed rate
Series BH (4)Series BI (4)Non-cumulative, 5-Year
Rate Reset (5)Series AZ (4)Series BB (4)Series BD (4)Series BF (4)Series BO (4)Series BT (4)Non-cumulative, fixed rate/
floating rate
Series C-2 (6)Other equity instruments
Limited recourse capitalnotes (7)Series 1 (8)Series 2 (9)Series 3 (10)
(1)

(2)

(3)
(4)

(5)

(6)

(7)

(8)

(9)

(10)

n.a.

Current
annual yield

Premium

4.90%
4.90%

$

Current
dividend
per share (1)Earliest
redemption
date (2)Issue date

.306250.306250

November 24, 2020
November 24, 2020

June 5, 2015
July 22, 2015

Redemption
price (2), (3)

$

26.00
26.00

3.70%
3.65%
3.20%
3.00%
4.80%
4.20%

2.21%
2.26%
2.74%
2.62%
2.38%
2.71%

.231250.228125.200000.187500.300000
21.000000

May 24, 2019
August 24, 2019
May 24, 2020
November 24, 2020
February 24, 2024
February 24, 2027

January 30, 2014
June 3, 2014
January 30, 2015
March 13, 2015
November 2, 2018
November 5, 2021

25.00
25.00
25.00
25.00
25.00
1,000.00

6.75%

4.052%

US$16.875000

November 7, 2023

November 2, 2015

US$1,000.00

4.50%
4.00%
3.65%

4.137%
3.617%
2.665%

n.a.
n.a.
n.a.

October 24, 2025
January 24, 2026
October 24, 2026

July 28, 2020
November 2, 2020
June 8, 2021

$1,000.00
1,000.00
1,000.00

With the exception of Series BT, non-cumulative preferential dividends of each Series are payable quarterly, as and when declared by the Board of Directors, on or about
the 24th day (7th day for Series C-2) of February, May, August and November. In the case of Series BT, non-cumulative preferential dividends are payable semi-annually,
as and when declared by the Board of Directors.
Subject to the consent of OSFI and the requirements of the Bank Act (Canada), we may, on or after the dates specified above, redeem First Preferred Shares. In the caseof Series AZ, BB, BD, BF, and BO, these may be redeemed for cash at a price per share of $25 if redeemed on the earliest redemption date and on the same date every
fifth year thereafter. In the case of BH and BI, these may be redeemed for cash at a price per share of $26 if redeemed during the 12 months commencing on the earliest
redemption date and decreasing by $0.25 each 12-month period thereafter to a price per share of $25 if redeemed four years from the earliest redemption date or
thereafter. Series BT may be redeemed for cash at a price per share of $1,000 if redeemed on the earliest redemption date and on the same date every fifth year
thereafter. Series C-2 may be redeemed at a price of US$1,000 on the earliest redemption date and any dividend payment date thereafter.
Subject to the consent of OSFI and the requirements of the Bank Act (Canada), we may purchase the First Preferred Shares of each Series for cancellation at the lowest
price or prices at which, in the opinion of the Board of Directors, such shares are obtainable.
The preferred shares include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversion of
the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly
announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each preferred share is convertible into common shares pursuant to an
automatic conversion formula with a multiplier of 1 and with a conversion price based on the greater of: (i) a floor price of $5 and (ii) the current market price of ourcommon shares based on the volume weighted average trading price of our common shares on the Toronto Stock Exchange. The number of shares issued is determinedby dividing the preferred share value by the conversion price.
The dividend rate will reset on the earliest redemption date and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond yield plus thepremium indicated. The holders have the option to convert their shares into non-cumulative floating rate First Preferred Shares subject to certain conditions on theearliest redemption date and every fifth year thereafter at a rate equal to the three-month Government of Canada Treasury Bill rate plus the premium indicated.
The dividend rate will change on the earliest redemption date at a rate equal to the 3-month LIBOR plus the premium indicated. Series C-2 do not qualify as Tier 1
regulatory capital. On November 7, 2023, we redeemed all of our issued and outstanding Non-Cumulative Fixed Rate/Floating Rate First Preferred Shares Series C-2 forcash at a redemption price of US$1,000 per share (equivalent to US$25 per depositary share).
The current annual yield on each LRCN Series represents the annual interest rate applicable to the notes issued as at the reporting date. The payments of interest andprincipal in cash on the LRCN Series are made at our discretion, and non-payment of interest and principal in cash does not constitute an event of default. In the event of(i) non-payment of interest on any interest payment date, (ii) non-payment of the redemption price in case of a redemption of a LRCN Series, (iii) non-payment ofprincipal at the maturity of a LRCN Series, or (iv) an event of default on a LRCN Series, holders of such LRCN Series will have recourse only to the assets (Trust Assets)held by a third-party trustee in a consolidated trust in respect of such LRCN Series and each such noteholder will be entitled to receive its pro rata share of the Trust
Assets. In such an event, the delivery of the Trust Assets for each LRCN Series will represent the full and complete extinguishment of our obligations under the related
LRCN Series. The LRCNs include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversionof the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly
announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is automatically redeemed and the redemption price will besatisfied by the delivery of Trust Assets, which will consist of common shares pursuant to an automatic conversion of the series of preferred shares that were issued
concurrently with the related LRCN Series. Each series of preferred shares include an automatic conversion formula with a conversion price based on the greater of: (i) afloor price of $5 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the Toronto Stock
Exchange. The number of common shares issued in respect of each series of preferred shares will be determined by dividing the preferred share value ($1,000 plus
declared and unpaid dividends) by the conversion price. The number of common shares delivered to each noteholder will be based on such noteholder’s pro rata interestin the Trust Assets. Subject to the consent of OSFI, we may purchase LRCNs for cancellation at such price or prices and upon such terms and conditions as we in ourabsolute discretion may determine, subject to any applicable law restricting the purchase of notes.
LRCN Series 1 bear interest at a fixed rate of 4.5% per annum until November 24, 2025, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 4.137% until maturity on November 24, 2080. The interest is paid semi-annually on or about the 24th day of May and November. LRCN
Series 1 is redeemable during the period from October 24 to and including November 24, commencing in 2025 and every fifth year thereafter to the extent we redeem
Series BQ pursuant to their terms and subject to the consent of OSFI and requirements of the Bank Act (Canada).
LRCN Series 2 bear interest at a fixed rate of 4.0% per annum until February 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 3.617% until maturity on February 24, 2081. The interest is paid semi-annually on or about the 24th day of February and August. LRCN
Series 2 is redeemable during the period from January 24 to and including February 24, commencing in 2026 and every fifth year thereafter to the extent we redeem
Series BR pursuant to their terms and subject to the consent of OSFI and requirements of the Bank Act (Canada).
LRCN Series 3 bear interest at a fixed rate of 3.65% per annum until November 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 2.665% until maturity on November 24, 2081. The interest is paid semi-annually on or about the 24th day of May and November. LRCN
Series 3 is redeemable during the period from October 24 to and including November 24, commencing in 2026 and every fifth year thereafter to the extent we redeem
Series BS pursuant to their terms and subject to the consent of OSFI and requirements of the Bank Act (Canada).
not applicable

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

215

Note 20 Equity (continued)

Restrictions on the payment of dividends
We are prohibited by the Bank Act (Canada) from declaring any dividends on our preferred or common shares when we are, or
would be placed as a result of the declaration, in contravention of the capital adequacy and liquidity regulations or any
regulatory directives issued under the Act. We may not pay dividends on our common shares at any time unless all dividends towhich preferred shareholders are then entitled have been declared and paid or set apart for payment.
Currently, these limitations do not restrict the payment of dividends on our preferred or common shares.
Dividend reinvestment plan
Our dividend reinvestment plan (DRIP) provides common and preferred shareholders with a means to receive additionalcommon shares rather than cash dividends. The plan is only open to shareholders residing in Canada or the U.S. The
requirements of our DRIP are satisfied through either open market share purchases or shares issued from treasury. During thesecond, third and fourth quarters of 2023, the requirements of our DRIP were satisfied through shares issued from treasury.
During the first quarter of 2023 and the year ended October 31, 2022, the requirements of our DRIP were satisfied through open
market share purchases.
Shares available for future issuances
As at October 31, 2023, 26.9 million common shares are available for future issue relating to our DRIP and potential exercise ofstock options and awards outstanding. In addition, we may issue up to 38.9 million common shares from treasury under the RBC
Umbrella Savings and Securities Purchase Plan that was approved by shareholders on February 26, 2009.
Note 21 Share-based compensation
Stock option plans
We have stock option plans for certain key employees. Under the plans, options are periodically granted to purchase commonshares. The exercise price for the majority of the grants is determined as the higher of the volume-weighted average of the
trading prices per board lot (100 shares) of our common shares on the Toronto Stock Exchange (i) on the day preceding the dayof grant; and (ii) the five consecutive trading days immediately preceding the day of grant. The exercise price for the remaining
grants is the closing market share price of our common shares on the New York Stock Exchange on the date of grant. All options
vest over a four-year period, and are exercisable for a period not exceeding 10 years from the grant date.
The compensation expense recorded for the year ended October 31, 2023, in respect of the stock option plans was $11 million(October 31, 2022 – $8 million). The compensation expense related to non-vested options was $5 million at October 31, 2023
(October 31, 2022 – $4 million), to be recognized over the weighted average period of 1.9 years (October 31, 2022 – 2.0 years).
Analysis of the movement in the number and weighted average exercise price of options is set out below:
A summary of our stock option activity and related information
For the year ended
October 31, 2023

Number ofoptions(thousands)
7,509
1,088
(740)
(90)

(Canadian dollars per share except share amounts)

Outstanding at beginning of period
GrantedExercised (2), (3)Forfeited in the period

October 31, 2022

Weighted
average
exercise price (1)$ 100.07
131.6484.76
113.55

Number ofoptions(thousands)
7,055
1,184
(684)
(46)

Weighted
average
exercise price (1)$ 92.27129.9973.98
104.28

Outstanding at end of period

7,767

$

106.01

7,509$ 100.07

Exercisable at end of period

3,830

$

91.84

3,502

$

(1)
(2)
(3)

87.15

The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rates as of October 31, 2023 and October 31, 2022.
For foreign currency-denominated options exercised during the year, the weighted average exercise prices are translated using exchange rates as at the settlement date.
Cash received for options exercised during the year was $63 million (October 31, 2022 – $51 million) and the weighted average share price at the date of exercise was$130.94 (October 31, 2022 – $134.10).
New shares were issued for all stock options exercised in 2023 and 2022.

Options outstanding as at October 31, 2023 by range of exercise price
Options outstanding(Canadian dollars per share except
share amounts and years)$64.73 – $79.65$90.23 – $96.55$102.33 – $104.70$106.00 – $106.00$129.99 – $131.64

Numberoutstanding(thousands)
936
1,779
1,633
1,202
2,217
7,767

(1)
216

Weighted
average
exercise price (1)
$
74.96
93.48
103.81106.00130.78$106.01

Options exercisable
Weighted
averageremaining
contractual
life (years)
1.58
3.82
5.22
7.12
8.60

Numberexercisable(thousands)
936
1,779
1,115
–
–

5.72

3,830

Weighted
average
exercise price (1)
$
74.96
93.48
103.39––The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rate as of October 31, 2023.
Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

$

91.84

The weighted average fair value of options granted during the year ended October 31, 2023 was estimated at $11.51 (October 31,
2022 – $7.80). This was determined by applying the Black-Scholes model on the date of grant, taking into account the specificterms and conditions under which the options are granted, such as the vesting period and expected share price volatility
estimated by considering the historic average share price volatility over a historical period corresponding to the expected option
life. The following assumptions were used to determine the fair value of options granted:
Weighted average assumptions
For the year ended
October 31(Canadian dollars per share except percentages and years)

Share price at grant date
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected life of option$2023
130.16
2.89%
3.79%
14%
6 Years

October 31

2022
128.48
1.25%
3.66%
13%
6 Years$

Employee savings and share ownership plans
We offer many employees an opportunity to own our common shares through savings and share ownership plans. Under theseplans, the employees can generally contribute between 1% and 10% of their annual salary or benefit base for commission-based
employees. For each contribution between 1% and 6%, we will match 50% of the employee contributions in our common shares.
For the RBC Dominion Securities Savings Plan, our maximum annual contribution is $4,500 per employee. For the RBC U.K. Share
Incentive Plan, our maximum annual contribution is £1,500 per employee. For the year ended October 31, 2023, we contributed$139 million (October 31, 2022 – $128 million), under the terms of these plans, towards the purchase of our common shares. As at
October 31, 2023, an aggregate of 36 million common shares were held under these plans (October 31, 2022 – 36 million commonshares).
Deferred share and other plans
We offer deferred share unit plans to executives, certain key employees and non-employee directors of the Bank. Under theseplans, participants may choose to receive all or a percentage of their annual variable short-term incentive bonus, commission, or
directors’ fee in the form of deferred share units (DSUs). The participants must elect to participate in the plan prior to thebeginning of the year. DSUs earn dividend equivalents in the form of additional DSUs at the same rate as dividends on commonshares. The participant is not allowed to convert the DSUs until retirement or termination of employment/directorship. The cash
value of the DSUs is equivalent to the market value of common shares when conversion takes place.
We also offer unit awards for certain key employees within Capital Markets. The bonus is invested as RBC share units and a
specified percentage vests on a specified number of anniversary dates each year. Each vested amount is paid in cash and isbased on the original number of share units granted plus accumulated dividends, valued using the average closing price of RBC
common shares during the five trading days immediately preceding the vesting date.
We offer performance deferred share award plans to certain key employees, all of which vest at the end of three years. Upon
vesting, the award is paid in cash and is based on the original number of RBC share units granted plus accumulated dividends
valued using the average closing price of RBC common shares during the five trading days immediately preceding the vestingdate. A portion of the award under certain plans may be increased or decreased up to 25%, depending on our total shareholder
return compared to a defined peer group of global financial institutions.
We maintain non-qualified deferred compensation plans for certain key employees in the U.S. These plans allow eligible
employees to defer a portion of their annual income and a variety of productivity and recruitment bonuses and allocate thedeferrals among specified fund choices, including a RBC Share Account fund that tracks the value of our common shares.
The following table presents the units granted under the deferred share and other plans for the year.
Units granted under deferred share and other plans
For the year ended
October 31, 2023

(Units and per unit amounts)

Deferred share unit plans
Capital Markets compensation plan unit awards
Performance deferred share award plans
Deferred compensation plans
Other share-based plans

October 31, 2022

Units
granted(thousands)

Weighted
averagefair value
per unit

Units
granted(thousands)

466
4,231
2,362
103
1,506

$ 130.61
110.32131.41126.81130.12

469
3,794
2,220
92
1,083

$

131.49125.22129.65135.44128.508,668$ 120.79

7,658$

127.48Weighted
averagefair value
per unit

Our liabilities for the awards granted under the deferred share and other plans are measured at fair value, determined based on
the quoted market price of our common shares and specified fund choices as applicable. Annually, our obligation is increased byadditional units earned by plan participants, and is reduced by forfeitures, cancellations, and the settlement of vested units. In
addition, our obligation is impacted by fluctuations in the market price of our common shares and specified fund units. For
performance deferred share award plans, the estimated outcome of meeting the performance conditions also impacts ourobligation.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

217

Note 21 Share-based compensation (continued)
The following tables present the units that have been earned by the participants, our obligations for these earned units
under the deferred share and other plans, and the related compensation expenses (recoveries) recognized for the year.
Obligations under deferred share and other plans
As at
October 31, 2023

(Millions of Canadian dollars except units)

Deferred share unit plans
Capital Markets compensation plan unit awards
Performance deferred share award plans
Deferred compensation plans (1)Other share-based plans
(1)

Units
(thousands)
5,786
9,934
5,808
2,654
2,135
26,317

Carrying
amount
$
641
1,098
643
294
234
$ 2,910October 31, 2022

Units
(thousands)
5,429
9,398
6,006
2,537
1,772
25,142Carrying
amount
$ 684
1,182
757
319
218
$ 3,160

Excludes obligations not determined based on the quoted market price of our common shares.

Compensation expenses recognized under deferred share and other plans
For the year ended
October 31(Millions of Canadian dollars)

Deferred share unit plans
Capital Markets compensation plan unit awards
Performance deferred share award plans
Deferred compensation plans
Other share-based plans$$

October 31

2023(51) $
126
216
213
104
608 $

2022
20
210
273
(261)
91
333

Note 22 Income taxes
Components of tax expense
For the year ended(Millions of Canadian dollars)

Income taxes (recoveries) in Consolidated Statements of Income
Current tax
Tax expense for current year
Adjustments for prior years
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference ofa prior period$

Deferred tax
Origination and reversal of temporary difference
Effects of changes in tax rates
Adjustments for prior years
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference ofa prior period, net

Income taxes (recoveries) in Consolidated Statements of Comprehensive Income and Changes in
EquityOther comprehensive income
Net unrealized gains (losses) on debt securities and loans at fair value through othercomprehensive income
Provision for credit losses recognized in income
Reclassification of net losses (gains) on debt securities and loans at fair value through othercomprehensive income to income
Unrealized foreign currency translation gains (losses)
Net foreign currency translation gains (losses) from hedging activities
Reclassification of losses (gains) on net investment hedging activities to income
Net gains (losses) on derivatives designated as cash flow hedges
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income
Remeasurement gains(losses) on employee benefit plans
Net gains(losses) from fair value change due to credit risk on financial liabilities designated at fairvalue through profit or loss
Net gains (losses) on equity securities designated at fair value through other comprehensive
incomeShare-based compensation awards
Distributions on other equity instruments and issuance costs
Total income taxes
218

Royal Bank of Canada: Annual Report 2023$
Consolidated Financial Statements

October 31

October 31

2023

2022

4,081
851

$

4,151
(230)

(100)
4,832

–
3,921

(1,286)
(47)
125

232
4
231

(24)
(1,232)
3,600

(86)
381
4,302

(10)
–

(633)
(2)

(39)
20
(306)
45
190
59
(68)

2
2
(478)
6
628
70
287

(222)

622

24
2
(59)
(364)
3,236 $

(3)
10
(45)
466
4,768

The following is an analysis of the differences between the income tax expense reflected in the Consolidated Statements ofIncome and the amounts calculated at the Canadian statutory tax rate.
Reconciliation to statutory tax rate
For the year ended(Millions of Canadian dollars, except for percentage amounts)

October 31, 2023

Income taxes at Canadian statutory tax rate
Increase (decrease) in income taxes resulting from:Lower average tax rate applicable to subsidiaries
Tax-exempt income from securities
Tax rate change
Other

$

Income taxes in Consolidated Statements of Income / effective tax rate$

October 31, 2022

5,115

27.7%

(2,130)
(337)
1,050
(98)

(11.5)
(1.8)
5.7
(0.6)

3,600

19.5%

$

$

5,269

26.2%

(428)
(437)
4
(106)

(2.1)
(2.2)
–
(0.5)

4,302

21.4%

The effective income tax rate of 19.5% decreased 190 bps, primarily due to lower average tax rate applicable to subsidiaries. Thisfactor was partially offset by the impact of the Canada Recovery Dividend (CRD) and the 1.5% increase in the Canadian corporate
tax rate in the current year.
Deferred tax assets and liabilities result from tax loss and tax credit carryforwards and temporary differences between the tax
basis of assets and liabilities and their carrying amounts on our Consolidated Balance Sheets.
Significant components of deferred tax assets and liabilities
As at and for the year ended October 31, 2023

(Millions of Canadian dollars)

Net deferred tax asset/(liability)
Allowance for credit losses
Deferred compensation
Business realignment charges
Tax loss and tax credit carryforwards
Deferred (income) expense
Financial instruments measured atfair value through othercomprehensive income
Premises and equipment andintangibles
Pension and post-employment
related
Other
Comprising
Deferred tax assets
Deferred tax liabilities

Net asset Change
ChangeExchange
Net asset
beginning of throughthroughrate Acquisitions/end ofperiodequity profit or loss differences
disposals Other
period
$

987 $
1,504
12
322
6

–
(2)
–
–
(3)

$

185
(2)
11
(57)
661

(16)

(330)

–

(1,234)

–

(435)
68
(113)
4
$ 1,033 $ (263)

$

–
–
–
(5)
(2)

$ –
–
–
–
–

$ 1,174
1,522
23
261
651

25

–

–

(321)

302

(27)

(8)

–

(967)

37
95
$ 1,232

1
24
37

(4)
–
(19)

–
–
$ –

(333)
10
$ 2,020

$

2
22
–
1
(11)

$

$

$ 1,472(439)$ 1,033$ 2,446(426)$ 2,020
As at and for the year ended October 31, 2022

(Millions of Canadian dollars)

Net deferred tax asset/(liability)
Allowance for credit losses
Deferred compensation
Business realignment charges
Tax loss and tax credit carryforwards
Deferred (income) expense
Financial instruments measured atfair value through othercomprehensive income
Premises and equipment andintangibles
Pension and post-employment
related
Other
Comprising
Deferred tax assets
Deferred tax liabilities

Net asset
beginning of
period$Changethrough
equityChangethrough
profit or loss

974 $
1,614
11
242
110

–
(10)
–
–
(1)

$

2
(211)
1
67
(126)

(19)

(2)

–

(836)

–

(163)
4
$ 1,937 $

(287)
22
(278)

Exchange
rate Acquisitions/differences
disposals
$

–
10
–
8
–

$ –
–
–
3
–

5

–

–

(16)

4

(57)

(345)

–

(1,234)19(137)$ (381)

4
(6)
83

(8)
4
$ (331)

–
–
$ 3

(435)
(113)
$ 1,033$$ 2,011(74)$ 1,937

11
101
–
2
23

$

Other

Net asset
end ofperiod
$

987
1,504
12
322
6

$ 1,472(439)$ 1,033

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

219

Note 22 Income taxes (continued)
The tax loss and tax credit carryforwards amount of deferred tax assets primarily relates to losses and tax credits in our
Canadian, U.S., and Caribbean operations. Deferred tax assets of $261 million were recognized at October 31, 2023 (October 31,
2022 – $322 million) in respect of tax losses and tax credits incurred in current or preceding years for which recognition isdependent on the projection of future taxable profits. Management’s forecasts support the assumption that it is probable thatthe results of future operations will generate sufficient taxable income to utilize the deferred tax assets. The forecasts rely on
continued liquidity and capital support to our business operations, including tax planning strategies implemented in relation tosuch support.
As at October 31, 2023, unused tax losses and tax credits of $417 million and $18 million (October 31, 2022 – $429 million and$130 million) available to be offset against potential tax adjustments or future taxable income were not recognized as deferred
tax assets. There are no unused tax losses that will expire within one year (October 31, 2022 – $nil), or in two to four years(October 31, 2022 – $nil) and there are $417 million of unused tax losses that will expire after four years (October 31, 2022 – $429
million). There are no tax credits that will expire in one year (October 31, 2022 – $nil), or in two to four years (October 31, 2022 –$93 million) and there are $18 million that will expire after four years (October 31, 2022 – $37 million).
The amount of temporary differences associated with investments in subsidiaries, branches and associates and interests injoint ventures for which deferred tax liabilities have not been recognized in the parent bank is $22 billion as at October 31, 2023
(October 31, 2022 – $26 billion).

Government of Canada Budget 2022
On December 15, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022 (the Bill), tabled by the Government of
Canada, received royal assent. The Bill amends the Income Tax Act (Canada) to implement a CRD and a permanent increase in
the Canadian corporate tax rate on banks and life insurer groups.
The CRD is a one-time 15% tax for 2022 determined based on the average taxable income above $1 billion for taxation years
2020 and 2021 and payable in equal installments over five years. The CRD resulted in an increase in income taxes of $1.2 billion forthe year ended October 31, 2023, of which $1 billion was recognized in net income and $0.2 billion was recognized in othercomprehensive income.
The permanent increase in the Canadian corporate tax rate is 1.5% on taxable income above $100 million and applies totaxation years that end after April 7, 2022, resulting in an increase in the Canadian statutory tax rate from 26.2% to 27.7% for theyear ended October 31, 2023.
Tax examinations and assessments
During the year, we received proposal letters (the Proposals) from the Canada Revenue Agency (CRA) in respect of the 2018
taxation year, which suggested that Royal Bank of Canada owes additional taxes of approximately $228 million as they denied
the deductibility of certain dividends. On November 28, 2023, we received a reassessment in respect of the 2018 taxation year,
consistent with the Proposals received during the year. The reassessment received is consistent with the reassessments received
for taxation years 2012 to 2017 of approximately $1,628 million of additional income taxes and the reassessments received fortaxation years 2009 to 2011 of approximately $434 million of additional income taxes and interest in respect of the same matter.
These amounts represent the maximum additional taxes owing for those years.
Legislative amendments introduced in the 2015 Canadian Federal Budget resulted in disallowed deduction of dividends fromtransactions with Taxable Canadian Corporations including those hedged with Tax Indifferent Investors, namely pension funds
and non-resident entities with prospective application effective May 1, 2017. The dividends to which the reassessments relate
include both dividends in transactions similar to those which are the target of the 2015 legislative amendments and dividends
which are unrelated to the legislative amendments.
It is possible that the CRA will reassess us for significant additional income tax for subsequent years on the same basis. In allcases, we are confident that our tax filing position was appropriate and intend to defend ourselves vigorously.
Note 23

Earnings per share
For the year ended
October 31

October 31

2023

2022

$

14,866 $(236)(7)

15,807(247)(13)

Net income available to common shareholders$

14,623$

15,547Weighted average number of common shares (in thousands)
Basic earnings per share (in dollars)$

1,391,020
10.51$

1,403,654
11.08$

14,623$

15,547(Millions of Canadian dollars, except share and per share amounts)

Basic earnings per share
Net income
Dividends on preferred shares and distributions on other equity instruments
Net income attributable to non-controlling interests

Diluted earnings per share
Net income available to common shareholders
Weighted average number of common shares (in thousands)
Stock options (1)Issuable under other share-based compensation plans
Average number of diluted common shares (in thousands)
Diluted earnings per share (in dollars)
(1)

220

1,391,020
1,483
26
$

1,392,529
10.50

1,403,654
1,918
462
$

1,406,034
11.06

The dilutive effect of stock options was calculated using the treasury stock method. When the exercise price of options outstanding is greater than the average market
price of our common shares, the options are excluded from the calculation of diluted earnings per share. For the year ended October 31, 2023, an average of 2,119,045
outstanding options with an average exercise price of $130.73 were excluded from the calculation of diluted earnings per share. For the year ended October 31, 2022, no
outstanding options were excluded from the calculation of diluted earnings per share.
Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Note 24 Guarantees, commitments, pledged assets and contingencies
Guarantees and commitments
We use guarantees and other off-balance sheet credit instruments to meet the financing needs of our clients.
The table below summarizes our maximum exposure to credit losses related to our guarantees and commitments provided
to third parties. The maximum exposure to credit risk relating to a guarantee is the maximum risk of loss if there was a total
default by the guaranteed parties, without consideration of possible recoveries under recourse provisions, insurance policies orfrom collateral held or pledged. The maximum exposure to credit risk relating to a commitment to extend credit is the full amountof the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognized as a liability in
our Consolidated Balance Sheets.
Maximum exposure
to credit losses
As at(Millions of Canadian dollars)

Financial guarantees
Financial standby letters of credit
Commitments to extend credit
Backstop liquidity facilities
Credit enhancements
Documentary and commercial letters of credit
Other commitments to extend credit
Other credit-related commitments
Securities lending indemnifications
Performance guarantees
Sponsored member guarantees
Other

$

October 31

October 31

2023

2022

23,314$

20,29151,544
3,226
291
301,132

45,3362,960
318
284,602

95,055
7,503
14,043203

90,693
7,333
1,241
360

Our credit review process, our policy for requiring collateral security, and the types of collateral security held are generally thesame for guarantees and commitments as for loans. Our clients generally have the right to request settlement of, or draw on, ourguarantees and commitments within one year. However, certain guarantees can only be drawn if specified conditions are met.
These conditions, along with collateral requirements, are described below. We believe that it is highly unlikely that all or
substantially all of the guarantees and commitments will be drawn or settled within one year, and contracts may expire without
being drawn or settled.
Financial guarantees
Financial standby letters of credit
Financial standby letters of credit represent irrevocable assurances that we will make payments in the event that a client cannot
meet its payment obligations to the third party. For certain guarantees, the guaranteed party can request payment from us eventhough the client has not defaulted on its obligations. These guarantees generally have a term of five to seven years.
Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is generally
the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to the risk of theborrower and the specifics of the transaction. Collateral security may include cash, securities and other assets pledged.
Commitments to extend credit
Backstop liquidity facilities
Backstop liquidity facilities are provided to ABCP conduit programs administered by us and third parties as an alternative sourceof financing in the event that such programs are unable to access commercial paper markets, or in limited circumstances, whenpredetermined performance measures of the financial assets acquired or financed by these programs are not met. We also
provide backstop liquidity facilities to certain third-party commercial mortgage securitization vehicles. The average remaining
term of these liquidity facilities is approximately four years.
The terms of the backstop liquidity facilities do not require us to advance money to these programs in the event ofbankruptcy or insolvency and generally do not require us to purchase non-performing or defaulted assets.

Credit enhancements
We provide partial credit enhancement to multi-seller ABCP programs administered by us to protect commercial paper investors
in the event that the collections on the underlying assets together with the transaction-specific credit enhancements or theliquidity facilities prove to be insufficient to pay for maturing commercial paper. Each of the asset pools is structured to achievea high investment grade credit profile through credit enhancements required to be provided by the third-party sellers related toeach transaction. The average remaining term of these credit facilities is approximately three years.
Documentary and commercial letters of credit
Documentary and commercial letters of credit, which are written undertakings by us on behalf of a client authorizing a third party
to draw drafts on us up to a stipulated amount under specific terms and conditions, where some are collateralized based on theunderlying agreement with the client and others are collateralized by cash deposits or other assets of the client.
Other commitments to extend credit
Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, reverse
repurchase agreements, bankers’ acceptances or letters of credit where we do not have the ability to unilaterally withdraw thecredit extended to the borrower.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

221

Note 24 Guarantees, commitments, pledged assets and contingencies (continued)
Other credit-related commitments
Securities lending indemnifications
In securities lending transactions, we act as an agent for the owner of a security, who agrees to lend the security to a borrower
for a fee, under the terms of a pre-arranged contract. The borrower must fully collateralize the security loaned at all times. As
part of this custodial business, an indemnification may be provided to securities lending customers to ensure that the fair valueof securities loaned will be returned in the event that the borrower fails to return the borrowed securities and the collateral held
is insufficient to cover the fair value of those securities. These indemnifications normally terminate without being drawn upon.
The term of these indemnifications varies, as the securities loaned are recallable on demand. Collateral held for our securities
lending transactions typically includes cash, securities that are issued or guaranteed by the Canadian government, U.S.
government or other OECD countries or high quality debt or equity instruments.

Performance guarantees
Performance guarantees represent irrevocable assurances that we will make payments to third-party beneficiaries in the eventthat a client fails to perform under a specified non-financial contractual obligation. Such obligations typically include works andservice contracts, performance bonds, and warranties related to international trade. The term of these guarantees can range up
to three to seven years.
Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is generally
the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to the risk of theborrower and the specifics of the transaction. Collateral security may include cash, securities and other assets pledged.
Sponsored member guarantees
For certain overnight repurchase and reverse repurchase transactions, we act as a sponsoring member to eligible clients to clear
transactions through the Fixed Income Clearing Corporation (FICC). We also provide a guarantee to FICC for the prompt and full
payment and performance of our sponsored member clients’ respective obligations under the FICC rules. The guarantees are
fully collateralized by cash and securities issued or guaranteed by the U.S. government.
Indemnifications
In the normal course of our operations, we provide indemnifications which are often standard contractual terms tocounterparties in transactions such as purchase and sale contracts, fiduciary, agency, licensing, custodial and service
agreements, clearing system arrangements, participation as a member of exchanges, director/officer contracts and leasingtransactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a resultof changes in laws and regulations (including tax legislation) or as a result of litigation claims or statutory sanctions that may besuffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements vary based on
the contract. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum
potential amount we could be required to pay to counterparties. Historically, we have not made any significant payments undersuch indemnifications.
Uncommitted amounts
Uncommitted amounts represent undrawn credit facilities for which we have the ability to unilaterally withdraw the credit
extended to the borrower at any time. These include both retail and commercial commitments. As at October 31, 2023, the totalbalance of uncommitted amounts was $398 billion (October 31, 2022 – $363 billion).
Other commitments
We invest in private companies, directly or through third-party investment funds, including venture capital funds, private equity
funds, Small Business Investment Companies, real estate funds and Low Income Housing Tax Credit funds. These funds are
generally structured as closed-end limited partnerships wherein we hold a limited partner interest. For the year ended
October 31, 2023, we have unfunded commitments of $1,832 million (October 31, 2022 – $1,421 million) representing the aggregate
amount of cash we are obligated to contribute as capital to these partnerships under the terms of the relevant contracts.
Pledged assets and collateralIn the ordinary course of business, we pledge assets and enter into collateral agreements with terms and conditions that areusual and customary to our regular lending, borrowing and trading activities recorded on our Consolidated Balance Sheets. The
following are examples of our general terms and conditions on pledged assets and collateral:•
The risks and rewards of the pledged assets reside with the pledgor.
•
The pledged asset is returned to the pledgor when the necessary conditions have been satisfied.
•
The right of the pledgee to sell or re-pledge the asset is dependent on the specific agreement under which the collateralis pledged.
•
If there is no default, the pledgee must return the comparable asset to the pledgor upon satisfaction of the obligation.
We are also required to provide intraday pledges to the Bank of Canada when we use a real-time electronic wire transfer systemthat continuously processes all Canadian dollar large-value or time-critical payments throughout the day. The pledged assets
earmarked for our Canadian dollar large-value or time-critical payments are normally released back to us at the end of thesettlement cycle each day. Therefore, the pledged assets amount is not included in the following table. For the year ended
October 31, 2023, we had on average $1 billion of assets pledged intraday to the Bank of Canada on a daily basis (October 31,
2022 – $2 billion). There are infrequent occasions where we are required to take an overnight advance from the Bank of Canada
to cover a settlement requirement, in which case an equivalent value of the pledged assets would be used to secure the advance.
There were no overnight advances taken on October 31, 2023 and October 31, 2022.

222

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Assets pledged against liabilities and collateral assets held or re-pledged
As at
October 31

October 31

2023

2022

(Millions of Canadian dollars)

Sources of pledged assets and collateral
Bank assets
Loans
Securities
Other assets$ 102,944
107,122
28,953

Client assets (1)Collateral received and available for sale or re-pledging
Less: not sold or re-pledged$

239,019

207,830

502,109(6,876)465,484(9,192)495,233
Uses of pledged assets and collateral
Securities borrowing and lending
Obligations related to securities sold short
Obligations related to securities lent or sold under repurchase agreements
Securitization
Covered bonds
Derivative transactions
Foreign governments and central banks
Clearing systems, payment systems and depositories
Other
(1)

97,17870,33440,318456,292$ 734,252$

664,122$ 168,681
46,260331,784
38,68669,80240,352
9,111
10,70918,867$

158,748
45,288274,392
40,43862,90549,556
9,503
8,263
15,029$ 734,252$

664,122

Primarily relates to Obligations related to securities lent or sold under repurchase agreements, Securities lent and Derivative transactions.

Note 25 Legal and regulatory matters
We are a large global institution that is subject to many different complex legal and regulatory requirements that continue to
evolve. We are and have been subject to a variety of legal proceedings, including civil claims and lawsuits, regulatory
examinations, investigations, audits and requests for information by various governmental regulatory agencies and law
enforcement authorities in various jurisdictions. Some of these matters may involve novel legal theories and interpretations andmay be advanced under criminal as well as civil statutes, and some proceedings could result in the imposition of civil, regulatory
enforcement or criminal penalties. We review the status of all proceedings on an ongoing basis and will exercise judgment in
resolving them in such manner as we believe to be in our best interest. In many proceedings, it is inherently difficult to determine
whether any loss is probable or to reliably estimate the amount of any loss. This is an area of significant judgment anduncertainty and the extent of our financial and other exposure to these proceedings after taking into account current provisions
could be material to our results of operations in any particular period though we do not believe that the ultimate resolution of
any such matter will have a material effect on our consolidated financial condition. The following is a description of oursignificant legal proceedings. Based on the facts currently known, except as may otherwise be noted, it is not possible at thistime for us to predict the ultimate outcome of these proceedings or the timing of their resolution.

London interbank offered rate (LIBOR) litigation
Royal Bank of Canada and other U.S. dollar panel banks have been named as defendants in private lawsuits filed in the U.S. withrespect to the setting of U.S. dollar LIBOR including a number of class action lawsuits which have been consolidated before theU.S. District Court for the Southern District of New York. The complaints in those private lawsuits assert claims against us andother panel banks under various U.S. laws, including U.S. antitrust laws, the U.S. Commodity Exchange Act, and state law. On
December 30, 2021, the U.S. Court of Appeals for the Second Circuit issued an opinion affirming in part and reversing in part certain
district court rulings that had dismissed a substantial portion of the consolidated class action on jurisdictional grounds and lack ofstanding. The Second Circuit remanded the matter to the district court for further proceedings consistent with its decision.
On July 21, 2023, Royal Bank of Canada and several other defendants executed a settlement agreement resolving one of the
LIBOR class actions brought on behalf of certain plaintiffs that purchased U.S. dollar LIBOR-based instruments. The settlement
was preliminarily approved on August 1, 2023 and remains subject to final court approval.
Royal Bank of Canada Trust Company (Bahamas) Limited proceedings
On April 13, 2015, a French investigating judge notified Royal Bank of Canada Trust Company (Bahamas) Limited (RBC Bahamas)of the issuance of an ordonnance de renvoi referring RBC Bahamas and other unrelated persons to the French tribunal
correctionnel to face the charge of complicity in estate tax fraud relating to actions taken relating to a trust for which RBC
Bahamas serves as trustee. RBC Bahamas believes that its actions did not violate French law and contested the charge in the
French court. On January 12, 2017, the French court acquitted all parties including RBC Bahamas and on June 29, 2018, the Frenchappellate court affirmed the acquittals. The acquittals were appealed and on January 6, 2021, the French Supreme Court issued ajudgment reversing the decision of the French Court of Appeal and sent the case back to the French Court of Appeal for
rehearing. The retrial before the Court of Appeal commenced on September 18, 2023 and has concluded. The Court of Appeal’s
decision is expected to be issued on March 5, 2024.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

223

Note 25 Legal and regulatory matters (continued)
On October 28, 2016, Royal Bank of Canada was granted an exemption by the U.S. Department of Labor that allows RoyalBank of Canada and its current and future affiliates to continue to qualify for the Qualified Professional Asset Manager (QPAM)
exemption under the Employee Retirement Income Security Act despite any potential conviction of RBC Bahamas in the French
proceeding for a temporary one year period from the date of conviction. We expect the Department of Labor to publish atechnical correction to the prior one-year exemption in advance of the Court of Appeals decision. The anticipated technicalcorrection will reflect the fact that the decision will be rendered by an appellate court, and not the district court. In addition, theDepartment of Labor has proposed amendments to the QPAM exemption. If the amendments are finalized as proposed, it isunclear how they would affect Royal Bank of Canada’s ability to obtain relief beyond the one-year temporary exemption period.
RBC Bahamas continues to review the trustee’s and the trust’s legal obligations, including liabilities and potential liabilities
under applicable tax and other laws.

Foreign exchange matters
Beginning in 2015, putative class actions were brought against Royal Bank of Canada and/or RBC Capital Markets, LLC in the U.S.,
Canada, the United Kingdom and Brazil. These actions were each brought against multiple foreign exchange dealers and alleged,
among other things, collusive behaviour in global foreign exchange trading. By May 2023 all of the U.S., Canadian and U.K. actions
were settled or dismissed, and while the Brazilian actions have not been resolved, our exposure to these actions is de minimis toRoyal Bank of Canada.
U.S. communications recordkeeping inquiry
In October 2022, our subsidiary RBC Capital Markets, LLC received a request for information and documents from the Securities
and Exchange Commission (SEC) concerning compliance with records preservation requirements relating to business
communications exchanged on electronic channels that have not been approved by RBC Capital Markets, LLC. RBC CapitalMarkets, LLC is cooperating with the SEC’s inquiry. As has been publicly reported, the SEC is conducting similar inquiries into
recordkeeping practices at multiple other financial institutions.
U.K. Competition and Markets Authority investigation
In November 2018, the U.K. Competition and Markets Authority (CMA) started an investigation of Royal Bank of Canada and RBC
Europe Limited relating to alleged anti-competitive conduct between 2009 and 2013, involving U.K. government bonds and related
derivatives. In May 2023, the CMA issued a statement of objections to Royal Bank of Canada and RBC Europe Limited, and certain
other financial institutions. Royal Bank of Canada and RBC Europe Limited are contesting the CMA’s case.
In June 2023, RBC Europe Limited and RBC Capital Markets, LLC, among other financial institutions, were named as
defendants in a putative class action filed in the U.S. by plaintiffs alleging anti-competitive conduct in the U.K. government bonds
market. In September 2023, the defendants filed a motion to dismiss the complaint.
Vacation pay class action
On December 29, 2022, the Ontario Superior Court of Justice certified a class in an action against RBC Dominion Securities
Limited and RBC Dominion Securities Inc. (together, RBC DS). The action commenced in July 2020, asserting claims relating tostatutory vacation pay and public holiday pay for investment advisors, associates and assistants in our Canadian WealthManagement business, with the exception of those employed in Alberta and British Columbia.
Other matters
We are a defendant in a number of other actions alleging that certain of our practices and actions were improper. The lawsuits
involve a variety of complex issues and the timing of their resolution is varied and uncertain. Management believes that we will
ultimately be successful in resolving these lawsuits, to the extent that we are able to assess them, without material financial
impact to the Bank. This is, however, an area of significant judgment and the potential liability resulting from these lawsuits
could be material to our results of operations in any particular period.
Various other legal proceedings are pending that challenge certain of our other practices or actions. While this is an area ofsignificant judgment and some matters are currently inestimable, we consider that the aggregate liability, to the extent that weare able to assess it, resulting from these other proceedings will not be material to our consolidated financial position or resultsof operations.
Note 26 Related party transactions
Related parties
Related parties include associated companies over which we have direct or indirect control or have significant influence andpost-employment benefit plans for the benefit of our employees. Related parties also include key management personnel (KMP),
the Board of Directors (Directors), close family members of KMP and Directors, and entities which are, directly or indirectly,
controlled by or jointly controlled by KMP, Directors or their close family members.
Key management personnel and Directors
KMP are defined as those persons having authority and responsibility for planning, directing and controlling our activities,
directly or indirectly. They include the senior members of our organization called the Group Executive (GE). The GE is comprisedof the President and Chief Executive Officer, and the Chief Officers and Group Heads, who report directly to him. The Directors do
not plan, direct, or control the activities of the entity; they oversee the management of the business and provide stewardship.

224

Royal Bank of Canada: Annual Report 2023

Consolidated Financial StatementsCompensation of Key management personnel and Directors
For the year ended
October 31

Salaries and other short-term employee benefits (2)Post-employment benefits (3)Share-based payments
(1)

(2)
(3)

October 31

$

2023
23
2
39

$

2022 (1)
27
2
40

$

64

$

69

(Millions of Canadian dollars)

During the year ended October 31, 2022 certain executives, who were members of the Bank’s GE as at October 31, 2021, left the Bank and therefore were no longer part of
KMP. Compensation for the year ended October 31, 2022 attributable to the former executives, including benefits and share-based payments relating to awards granted inprior years was $14 million.
Includes the portion of the annual variable short-term incentive bonus that certain executives elected to receive in the form of DSUs. Refer to Note 21 for further details.
Directors receive retainers but do not receive salaries and other short-term employee benefits.
Directors do not receive post-employment benefits.

Stock options, share-based awards and shares held by Key management personnel, Directors and their close family
members
As at
October 31, 2023 (1)(Millions of Canadian dollars, except number of units)

Stock options (3)Other non-option share-based awards (3)RBC common and preferred shares
(1)
(2)
(3)

No. ofunits held
2,805,471
991,909
181,648
3,979,028

October 31, 2022 (2)

$

Value
26
110
20

No. ofunits held
2,409,294
914,496
170,312

$

Value
59
115
22

$

156

3,494,102$196

During the year ended October 31, 2023, certain directors, who were members of the Board of Directors as at October 31, 2022, retired. Total shareholdings held upon
their retirement was 32,958 units with a value of $4 million.
During the year ended October 31, 2022 certain executives, who were members of the Bank’s GE as at October 31, 2021, left the Bank and therefore were no longer KMP.
Total shareholdings and options held upon their departure was 569,470 units with a value of $34 million.
Directors do not receive stock options or any other non-option share-based awards.

Transactions, arrangements and agreements involving Key management personnel, Directors and their close family
members
In the normal course of business, we provide certain banking services to KMP, Directors, and their close family members. Thesetransactions were made on substantially the same terms, including interest rates and security, as for comparable transactions
with persons of a similar standing and did not involve more than the normal risk of repayment or present other unfavourable
features.
As at October 31, 2023, total loans to KMP, Directors and their close family members were $18 million (October 31, 2022 –$14 million). We have no Stage 3 allowance or provision for credit losses relating to these loans as at and for the years ended
October 31, 2023 and October 31, 2022. No guarantees, pledges or commitments have been given to KMP, Directors or their closefamily members.
Joint ventures and associates
In the normal course of business, we provide certain banking and financial services to our joint ventures and associates,
including loans, interest and non-interest bearing deposits. These transactions meet the definition of related party transactions
and were made on substantially the same terms as for comparable transactions with third parties.
As at October 31, 2023, loans to joint ventures and associates were $217 million (October 31, 2022 – $251 million) and deposits
from joint ventures and associates were $77 million (October 31, 2022 – $20 million). We have no stage 3 allowance or provision
for credit losses relating to loans to joint ventures and associates as at and for the years ended October 31, 2023 and October 31,
2022. $1 million of guarantees have been given to joint ventures and associates for the year ended October 31, 2023 (October 31,
2022 – $1 million).
Other transactions, arrangements or agreements involving joint ventures and associates
As at or for the year ended
October 31(Millions of Canadian dollars)Commitments and other contingencies
Other fees received for services rendered
Other fees paid for services received$

Consolidated Financial Statements

2023
1,089
55
108

October 31$

Royal Bank of Canada: Annual Report 2023

2022
829
50
107

225

Note 27 Results by business segment
Composition of business segments
For management purposes, based on the products and services offered, we are organized into four business segments:
Personal & Commercial Banking, Wealth Management, Insurance, and Capital Markets. Effective the first quarter of 2023, we
simplified our reporting structure by eliminating the Investor & Treasury Services segment and moving its former businesses toexisting segments. We moved our Investor Services business to our Wealth Management segment, and our Treasury Services andTransaction Banking businesses to our Capital Markets segment. Effective the fourth quarter of 2023, we moved the Investor
Services lending business from our Wealth Management segment to our Capital Markets segment. From a reporting perspective,
there were no changes to our Personal & Commercial Banking and Insurance segments. Comparative results have been revised
to conform to our new basis of segment presentation.
Personal & Commercial Banking provides a broad suite of financial products and services to individual and business clients fortheir day-to-day banking, investing and financing needs through two businesses: Canadian Banking and Caribbean & U.S.
Banking. In Canada, we provide a broad suite of financial products and services through our large branch network, ATMs, andmobile sales network. In the Caribbean and the U.S., we offer a broad range of financial products and services in targetedmarkets. Non-interest income in Personal & Commercial Banking mainly comprises Service charges, Mutual fund revenue andCard service revenue.
Wealth Management serves high net worth and ultra-high net worth individual and institutional clients with a comprehensive
suite of advice-based solutions and strategies as well as personalized banking relationships through our lines of businesses in
Canada, the U.S., the U.K., Europe and Asia, including Canadian Wealth Management, U.S. Wealth Management (including City
National), Global Asset Management, International Wealth Management, and Investor Services. Non-interest income in WealthManagement mainly comprises Investment management and custodial fees, Mutual fund revenue and Securities brokeragecommissions.
Insurance has operations in Canada and globally, operating under two business lines: Canadian Insurance and International
Insurance, providing a wide range of advice and solutions for individual and business clients including life, health, wealth,property & casualty, travel, group benefits, annuities, and reinsurance. In Canada, we offer our products and services through awide variety of channels, comprised of mobile advisors, advice centres, RBC Insurance® stores, and digital platforms as well as
through independent brokers and partners. Outside Canada, we operate in reinsurance and retrocession markets globallyoffering life, critical illness, disability and longevity reinsurance products. Non-interest income in Insurance is comprised ofInsurance premiums, and investment and fee income.
Capital Markets provides expertise in advisory & origination, sales & trading, lending & financing and transaction banking tocorporations, institutional clients, asset managers, private equity firms and governments globally in our two main business lines:
Corporate & Investment Banking and Global Markets. In North America, we offer a full suite of products and services which
include equity and debt origination and distribution, advisory services, and sales & trading. Outside North America, we have atargeted strategic presence in the U.K. & Europe, Australia, Asia & other markets aligned to our global expertise. In the U.K. &Europe, we offer a diversified set of capabilities in key industry sectors of focus. In Australia and Asia, we compete with global
and regional investment banks in targeted areas aligned to our global expertise, including fixed income distribution andcurrencies trading, secured financing, as well as corporate and investment banking. Non-interest income in Capital Markets
mainly includes Trading revenue, Underwriting and other advisory fees and Credit fees.
All other enterprise level activities that are not allocated to these four business segments, such as certain treasury and liquidity
management activities, including amounts associated with unattributed capital, and consolidation adjustments, including theelimination of the Taxable equivalent basis (Teb) gross-up amounts, are included in Corporate Support. Teb adjustments grossup income from certain tax-advantaged sources from Canadian taxable corporate dividends and U.S. tax credit investments
recorded in Capital Markets to their effective tax equivalent value with the corresponding offset recorded in the provision forincome taxes. Management believes that these Teb adjustments are necessary for Capital Markets to reflect how it is managed
and enhances the comparability of revenue across our taxable and tax-advantaged sources. Our use of Teb adjustments may not
be comparable to similarly adjusted amounts at other financial institutions. The Teb adjustment for the year ended October 31,
2023 was $559 million (October 31, 2022 – $572 million). Gains (losses) on economic hedges of our U.S. Wealth Management(including City National) share-based compensation plans, which are reflected in revenue, and related variability in share-based
compensation expense driven by changes in the fair value of liabilities relating to these plans are also included in Corporate
Support as this presentation more closely aligns with how we view business performance and manage the underlying risks.
Geographic segments
For geographic reporting, our segments are grouped into Canada, the U.S. and Other International. Transactions are primarily
recorded in the location that best reflects the risk due to negative changes in economic conditions and prospects for growth due
to positive economic changes. This location frequently corresponds with the location of the legal entity through which thebusiness is conducted and the location of our clients. Transactions are recorded in the local currency and are subject to foreignexchange rate fluctuations with respect to the movement in the Canadian dollar.
Management reporting framework
Our management reporting framework is intended to measure the performance of each business segment as if it were a standalone business and reflects the way that the business segment is managed. This approach is intended to ensure that ourbusiness segments’ results include all applicable revenue and expenses associated with the conduct of their business anddepicts how management views those results. We regularly monitor these segment results for the purpose of making decisions
about resource allocation and performance assessment. These items do not impact our consolidated results.

226

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

The expenses in each business segment may include costs or services directly incurred or provided on their behalf at theenterprise level. For other costs not directly attributable to one of our business segments, we use a management reporting
framework that uses assumptions and methodologies for allocating overhead costs and indirect expenses to our businesssegments and that assists in the attribution of capital and the transfer pricing of funds to our business segments in a manner thatconsistently measures and aligns the economic costs with the underlying benefits and risks of that specific business segment.
Activities and business conducted between our business segments are generally at market rates. All other enterprise level
activities that are not allocated to our four business segments are reported under Corporate Support.
Our assumptions and methodologies used in our management reporting framework are periodically reviewed by us toensure that they remain valid. The capital attribution methodologies involve a number of assumptions that are revised
periodically.
For the year ended October 31, 2023

(Millions of Canadian dollars)Personal &Commercial
Banking

Net interest income (2)Non-interest income$ 16,074 $6,046

WealthManagement Insurance

CapitalMarkets (1)Corporate
Support (1)Total

CanadaUnitedOther
States International

1,181 $
(1,442)25,129 $31,00018,752 $14,851

5,065 $
8,563

1,312
7,586

4,495 $
– $13,0495,675

3,379 $
7,672

22,1201,579

17,544
328

5,675
–

11,051
561

(261)
–

56,1292,468

33,603
1,648

13,628
784

8,898
36

–
9,215

–
14,128

4,022
653

–
6,509

–
668

4,022
31,173

2,161
15,319–
11,177

1,861
4,677

11,326
3,060

3,088
661

1,000
197

3,981
(158)

(929)
(160)

18,4663,600

14,475
4,770

1,667(1,103)

2,324
(67)

$

8,266 $

2,427 $

803 $

4,139 $

(769) $

14,866 $9,705 $

2,770 $

2,391

Non-interest expense includes:
Depreciation and amortization $Impairment of other intangibles

961 $
13

1,234 $
81

58 $
1

509 $
2

– $
11

2,762 $
108

1,570 $
28

836 $
65

356
15

Total revenue
Provision for credit losses
Insurance policyholder benefits,claims and acquisition expense
Non-interest expense
Net income (loss) before income
taxes
Income taxes (recoveries)
Net income

Total assets$ 636,046 $Total assets include:
Additions to premises andequipment and intangibles$

Total liabilities$ 635,952 $(Millions of Canadian dollars)Personal &Commercial
WealthBanking Management (3)463 $179,227 $ 22,591 $ 1,100,172 $1,008 $

53 $

66,956 $ 2,004,992 $ 1,042,663 $ 639,296 $ 323,033

311 $

639 $

2,474 $

1,334 $

700 $

440

177,389 $ 23,355 $ 1,099,893 $ (49,357) $ 1,887,232
For the year ended October 31, 2022

Net interest income (2)Non-interest income$

CapitalInsurance Markets (1), (3)Corporate
Support (1)Total

CanadaUnited States

Other
International

14,019 $6,124

3,886 $
12,357– $3,510

4,944 $
5,005

(132) $
(728)

22,717 $26,26815,761 $
13,5085,423 $
6,364

1,533
6,396

20,143463

16,243
33

3,510
–

9,949
(13)

(860)
1

48,985484

29,269600

11,787
60

7,929
(176)

–
8,437

–
12,015

1,783
588

–
5,816

–
(247)

1,783
26,609(466)
13,648

–
9,006

2,249
3,955

11,243
2,873

4,195
985

1,139
282

4,146
778

(614)
(616)

20,1094,302

15,487
3,615

2,721
452

1,901
235

$

8,370 $

3,210 $

857 $

3,368 $

2 $15,807 $11,872 $2,269 $

1,666

Non-interest expense includes:
Depreciation and amortization $Impairment of other intangibles

942 $
11

1,109 $
2

57 $
2

514 $
3

12 $
–

2,634 $
18

1,617 $
11

776 $
5

241
2

198,380 $ 21,918 $

1,033,978 $60,119 $1,917,219 $

992,485 $570,255 $354,479

49 $

258 $

630 $

3,678 $

1,263 $

666 $

1,749

198,329 $ 22,588 $

1,033,689 $(48,303) $Total revenue
Provision for credit losses
Insurance policyholder benefits,claims and acquisition expense
Non-interest expense
Net income (loss) before income
taxes
Income taxes (recoveries)
Net income

Total assets$ 602,824 $Total assets include:
Additions to premises andequipment and intangibles$

Total liabilities$ 602,741 $

(1)
(2)
(3)

394 $

2,347 $

1,809,044

Taxable equivalent basis.
Interest revenue is reported net of interest expense as we rely primarily on net interest income as a performance measure.
Amounts have been revised from those previously presented to conform to our new basis of segment presentation.

Note 28 Nature and extent of risks arising from financial instruments
We are exposed to credit, market and liquidity and funding risks as a result of holding financial instruments. Our risk
measurement and objectives, policies and methodologies for managing these risks are disclosed in the shaded text along withthose tables specifically marked with an asterisk (*) in the Credit risk section of Management’s Discussion and Analysis. These
shaded text and tables are an integral part of these Consolidated Financial Statements.
Concentrations of credit risk exist if a number of our counterparties are engaged in similar activities, are located in the samegeographic region or have comparable economic characteristics such that their ability to meet contractual obligations would be
similarly affected by changes in economic, political or other conditions.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

227

Note 28 Nature and extent of risks arising from financial instruments (continued)
Concentrations of credit risk indicate the relative sensitivity of our performance to developments affecting a particularindustry or geographic location. The amounts of credit exposure associated with certain of our on- and off-balance sheet
financial instruments are summarized in the following tables.
As at October 31, 2023
(Millions of Canadian dollars,
except percentage amounts)

On-balance sheet assets otherthan derivatives (1)Derivatives before masternetting agreements (2), (3)Canada%UnitedStates%$ 798,259 66% $ 294,670 24% $27,221 19%

36,698 25%

EuropeOther% International%

76,6376% $

4% $ 1,219,713

67,406 46%

14,470 10%$ 825,480 60% $ 331,368 24% $ 144,043 11% $Off-balance sheet credit
instruments (4)Committed and uncommitted (5) $ 427,849 56% $ 252,071 33% $Other85,222 61%
30,737 22%$ 513,071 57% $ 282,808 32% $50,147

Total

145,795

64,6175% $ 1,365,508

51,3938% $21,428 15%

23,183
2,731

3% $
2%

754,496
140,118

72,821

25,9143% $894,6148% $As at October 31, 2022

Canada%UnitedStates$759,03765% $

263,73623% $

32,43420%

35,921

23%

72,88546%

17,43911%$

791,47160% $

299,65723% $160,556

12% $

66,4305% $1,318,114

Off-balance sheet credit
instruments (4)Committed and uncommitted (5) $Other398,719
79,11057% $
66%

223,624
13,84732% $
12%52,66924,4768% $
20%

20,857
2,485

3% $
2%

695,869
119,918$

477,82959% $

237,47129% $

77,1459% $23,342

3% $815,787(Millions of Canadian dollars,
except percentage amounts)

On-balance sheet assets otherthan derivatives (1)Derivatives before masternetting agreements (2), (3)

(1)

Other
International%

Europe%%87,6718% $48,9914% $Total
1,159,435
158,679

Includes Assets purchased under reverse repurchase agreements and securities borrowed, Loans and Customers’ liability under acceptances. The largest concentrations
in Canada are Ontario at 57% (October 31, 2022 – 56%), the Prairies at 15% (October 31, 2022 – 15%), British Columbia and the territories at 14% (October 31, 2022 – 15%)and Quebec at 10% (October 31, 2022 – 10%). No industry accounts for more than 20% (October 31, 2022 – 20%) of total on-balance sheet credit instruments, with the
exception of Banking, which accounted for 25% (October 31, 2022 – 26%), and Government, which accounted for 28% (October 31, 2022 – 32%). The classification of oursectors aligns with our view of credit risk by industry.
A further breakdown of our derivative exposures by risk rating and counterparty type is provided in Note 9.
Excludes valuation adjustments determined on a pooled basis.
Balances presented are contractual amounts representing our maximum exposure to credit risk.
Represents our maximum exposure to credit risk. Retail and wholesale commitments respectively comprise 44% and 56% of our total commitments (October 31, 2022 –45% and 55%). The largest concentrations in the wholesale portfolio relate to Financial services at 15% (October 31, 2022 – 15%), Real estate and related at 12%(October 31, 2022 – 12%), Utilities at 11% (October 31, 2022 – 11%), Other services at 8% (October 31, 2022 – 7%), and Investments at 6% (October 31, 2022 – 6%). The
classification of our sectors aligns with our view of credit risk by industry.

(2)
(3)
(4)
(5)

Note 29 Capital management
Regulatory capital and capital ratios
OSFI formally establishes risk-based capital and leverage minimums and Total Loss Absorbing Capacity (TLAC) ratios for deposittaking institutions in Canada. We are required to calculate our capital ratios using the Basel III framework. Under Basel III,regulatory capital includes Common Equity Tier 1 (CET1), Tier 1 and Tier 2 capital. CET1 capital mainly consists of common shares,
retained earnings and other components of equity. Regulatory adjustments under Basel III include deductions of goodwill andother intangibles, certain deferred tax assets, defined benefit pension fund assets, investments in banking, financial andinsurance entities, the shortfall of provisions to expected losses, prudential valuation adjustments, prepaid portfolio insurance
assets, non payment and non delivery of trades and equity investment in funds subject to the fall-back approach. Tier 1 capitalcomprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares and LRCNs that meetcertain criteria. Tier 2 capital includes subordinated debentures that meet certain criteria, certain loan loss allowances and noncontrolling interests in subsidiaries’ Tier 2 instruments. Total capital is the sum of Tier 1 and Tier 2 capital. External TLAC
instruments comprise predominantly senior bail-in debt, which includes eligible senior unsecured debt with an original term tomaturity of greater than 400 days and remaining term to maturity of greater than 365 days. TLAC available is defined as the sumof Total capital and external TLAC instruments.
Regulatory capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by risk-weighted assets. The
leverage ratio is calculated by dividing Tier 1 capital by an exposure measure. The exposure measure consists of total assets(excluding items deducted from Tier 1 capital) and certain off-balance sheet items converted into credit exposure equivalents.
Adjustments are also made to derivatives and secured financing transactions to reflect credit and other risks. The TLAC leverage
ratio is calculated by dividing TLAC available by the leverage ratio exposure.

228

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

During 2023 and 2022, we complied with all applicable capital, leverage and TLAC requirements, including the domestic stability
buffer, imposed by OSFI.
As at(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

Capital (1)CET1 capital
Tier 1 capital
Total capital$

October 31

October 31

2023

2022

86,611
93,904
104,952$

76,94584,24293,850Risk-weighted assets (RWA) used in calculation of capital ratios (1)Credit risk
Market risk
Operational risk

$ 475,842
40,49879,883$496,898
35,342
77,639Total RWA

$ 596,223$

609,879

$

12.6%
13.8%
15.4%
4.4%
1,898

Capital ratios and Leverage ratio (1)CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Leverage ratio exposure (billions)$

TLAC available and ratios (2)TLAC available
TLAC ratio
TLAC leverage ratio$ 184,916
31.0%
8.5%

(1)

(2)

14.5%
15.7%
17.6%
4.3%
2,180

$

160,961
26.4%
8.5%

Capital, RWA, and capital ratios are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline and the Leverage ratio is calculated using OSFI’s Leverage
Requirements (LR) guideline. Both the CAR guideline and LR guideline are based on the Basel III framework. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in Q2 2023 as part of OSFI’s implementation of the Basel III reforms.
TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level which for us is deemed to be
Royal Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called a resolution group. Both the TLAC ratio and TLAC leverage ratio
are calculated using the TLAC available as percentage of total RWA and leverage exposure, respectively.

Note 30 Offsetting financial assets and financial liabilities
Offsetting within our Consolidated Balance Sheets may be achieved where financial assets and liabilities are subject to masternetting arrangements that provide the currently enforceable right of offset and where there is an intention to settle on a net
basis, or realize the assets and settle the liabilities simultaneously. For derivative contracts and repurchase and reverse
repurchase arrangements, this is generally achieved when there is a market mechanism for settlement (e.g., central counterparty
exchange or clearing house) which provides daily net settlement of cash flows arising from these contracts. Margin receivables
and margin payables are generally offset as they settle simultaneously through a market settlement mechanism.
Amounts that do not qualify for offsetting include master netting arrangements that only permit outstanding transactions
with the same counterparty to be offset in an event of default or occurrence of other predetermined events. Such master netting
arrangements include the International Swaps and Derivatives Association Master Agreement or certain derivative exchange or
clearing counterparty agreements for derivative contracts, global master repurchase agreement and global master securities
lending agreements for repurchase, reverse repurchase and other similar secured lending and borrowing arrangements.
The amount of financial collateral received or pledged subject to master netting arrangements or similar agreements that do
not qualify for offsetting refers to the collateral received or pledged to cover the net exposure between counterparties byenabling the collateral to be realized in an event of default or the occurrence of other predetermined events. Certain amounts ofcollateral are restricted from being sold or re-pledged unless there is an event of default or the occurrence of otherpredetermined events.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

229

Note 30 Offsetting financial assets and financial liabilities (continued)
The following tables provide the financial instrument amounts that have been offset on the Consolidated Balance Sheets andthe amounts that do not qualify for offsetting but are subject to enforceable master netting arrangements or similar agreements.
The amounts presented are not intended to represent our actual exposure to credit risk.
Financial instruments subject to enforceable master netting arrangements or similar agreements
As at October 31, 2023
Amounts subject to enforceable netting arrangements
Related amounts notoffset on the Consolidated
Balance Sheets (1)Gross amountsof recognizedfinancial
instruments(Millions of Canadian dollars)

Financial assets
Assets purchased under reverse
repurchase agreements andsecurities borrowed
Derivative assets
Other financial assets$$

Financial liabilities
Obligations related to assets soldunder repurchase agreements
and securities loaned
Derivative liabilities
Other financial liabilities$$

Gross amounts
offset on theConsolidated
Balance Sheets

436,617
138,318
3,306
578,241$

427,330
132,770
1,475
561,575$$$

Net amounts
presented in theConsolidated
Balance Sheets

96,676
1,544
443
98,663$96,676
1,544
443
98,663$$$

Impact ofmasternetting
Financialagreements collateral (2)339,941
136,774
2,863
479,578$

330,654
131,226
1,032
462,912$$$

Net amounts

Amounts not
subject toenforceablenettingarrangements

Net amounts
presented
on theConsolidated
Balance Sheets

$

$

201
89,88919
90,109$ 336,112
22,310421$ 358,843$

201
89,88919
90,109$ 325,674
17,340–$ 343,014

$

$

$

3,628
24,5752,423
30,626

4,779
23,997
1,013
29,789

$

$
$

250
5,676
–
5,926

4,584
11,403–
15,987$$$340,191
142,450
2,863
485,504

335,238
142,629
1,032
478,899

As at October 31, 2022
Amounts subject to enforceable netting arrangements
Related amounts notoffset on the Consolidated
Balance Sheets (1)Gross amountsof recognizedfinancial
instruments(Millions of Canadian dollars)

Financial assets
Assets purchased under reverse
repurchase agreements andsecurities borrowed
Derivative assets
Other financial assets$$

Financial liabilities
Obligations related to assets soldunder repurchase agreements
and securities loaned
Derivative liabilities
Other financial liabilities

$
$

(1)
(2)

230

411,937
146,479
1,638
560,054360,722
141,137825
502,684

Gross amounts
offset on theConsolidated
Balance Sheets

$
$

$
$

94,2032,185
304
96,692

94,2032,185
304
96,692

Net amounts
presented in theConsolidated
Balance Sheets

$
$

$
$

317,734
144,294
1,334
463,362

266,519
138,952521
405,992

Impact ofmasternettingagreements

$
$

$
$

Financialcollateral (2)293
98,61011
98,914$ 314,602
21,41283$ 336,097

293
98,61011
98,914$ 265,822
19,758–$ 285,580

Net amounts

Amounts not
subject toenforceablenettingarrangements

Net amounts
presented
on theConsolidated
Balance Sheets

$

$

$

$

$
$

2,839
24,272
1,240
28,351404
20,584510
21,498$$$111
10,145–
10,256

7,428
14,539–21,967$$$

317,845
154,4391,334
473,618

273,947
153,491521
427,959

Financial collateral is reflected at fair value. The financial instrument amounts and financial collateral disclosed are limited to the net balance sheet exposure, and any
over-collateralization is excluded from the table.
Includes cash collateral of $17 billion (October 31, 2022 – $20 billion) and non-cash collateral of $342 billion (October 31, 2022 – $316 billion) received for financial assets
and cash collateral of $15 billion (October 31, 2022 – $19 billion) and non-cash collateral of $328 billion (October 31, 2022 – $267 billion) pledged for financial liabilities.

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Note 31 Recovery and settlement of on-balance sheet assets and liabilities
The table below presents an analysis of assets and liabilities recorded on our Consolidated Balance Sheets by amounts to be
recovered or settled within one year and after one year, as at the balance sheet date, based on contractual maturities andcertain other assumptions outlined in the footnotes below. As warranted, we manage the liquidity risk of various products basedon historical behavioural patterns that are often not aligned with contractual maturities. Amounts to be recovered or settled
within one year, as presented below, may not be reflective of our long-term view of the liquidity profile of certain balance sheet
categories.
As at
October 31, 2023

Within one
year(Millions of Canadian dollars)

AssetsCash and due from banks (1)Interest-bearing deposits withbanks
Securities
Trading (2)Investment, net of applicableallowance
Assets purchased under reverse
repurchase agreements andsecurities borrowed
Loans
RetailWholesale
Allowance for loan losses
Segregated fund net assets
Other
Customers’ liability under
acceptances
Derivatives (2)Premises and equipment
Goodwill
Other intangibles
Other assets
Liabilities
Deposits (3)Segregated fund net liabilities
Other
Acceptances
Obligations related to securities
sold short
Obligations related to assets soldunder repurchase agreements
and securities loaned
Derivatives (2)Insurance claims and policy
benefit liabilities
Other liabilities
Subordinated debentures$

59,793

(3)

Total
$

71,081After one
year
$

1,316

Total

61,98971,086–

71,086108,011–

108,011

180,929

9,222

190,151

139,810

8,395

148,205

33,363

186,216

219,579

26,540143,478

170,018

336,437

3,754

340,191

316,7141,131

317,845

120,247
76,249449,704
211,577

113,965
70,374435,786
203,593–

2,760

569,951
287,826(5,004)
2,760

–

2,638

549,751
273,967(3,753)
2,638

21,690140,26165––
62,555

5
2,189
6,684
12,594
5,907
14,513

21,695
142,450
6,749
12,594
5,907
77,06817,827
151,92859––
66,071

–
2,511
7,155
12,277
6,083
14,22917,827
154,4397,21412,277
6,083
80,300$ 1,102,675$ 907,321 $ 2,004,992$ 1,082,380$

838,592$ 1,917,219$$ 240,203 $ 1,231,687
2,760
2,760

$ 1,023,324–$

185,490
2,638$ 1,208,814
2,638

991,484–$

October 31, 2022

Within one
year

2,196 $$

72,397

21,7405

21,745

17,872–

17,87232,602

1,049

33,651

34,105

1,406

35,511

334,959
131,352279
11,277335,238
142,629

273,001
140,808946
12,683273,947
153,491

1,898
69,187–

10,06826,983
11,386

11,96696,17011,386

1,904
71,689110

9,607
23,546
9,915

11,511
95,235
10,025$ 304,010 $ 1,887,232$ 1,562,813

246,231$ 1,809,044$ 1,583,222(1)(2)

After oneyear$

Cash and due from banks are assumed to be recovered within one year, except for cash balances not available for use by the Bank.
Trading securities classified as FVTPL and trading derivatives are presented as within one year as this best represents in most instances the short-term nature of our
trading activities. Trading securities designated as FVTPL are generally presented based on contractual maturity. Non-trading derivatives are presented according to therecovery or settlement of the hedging transaction.
Demand deposits of $511 billion (October 31, 2022 – $562 billion) are presented as within one year due to their being repayable on demand or at short notice on acontractual basis. In practice, these deposits relate to a broad range of individuals and customer-types which form a stable base for our operations and liquidity needs.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

231

Note 32 Parent company information

The following table presents information regarding the legal entity of Royal Bank of Canada with its subsidiaries presented on an
equity accounted basis.
Condensed Balance Sheets
As at(Millions of Canadian dollars)

AssetsCash and due from banks
Interest-bearing deposits with banks
Securities
Investments in bank subsidiaries and associated companies (1)Investments in other subsidiaries and associated companies
Assets purchased under reverse repurchase agreements and securities borrowed
Loans, net of allowance for loan losses
Net balances due from bank subsidiaries (1)Other assets
Liabilities and shareholders’ equity
Deposits
Net balances due to bank subsidiaries (1)Net balances due to other subsidiaries
Other liabilities

October 31

2023

2022

$

41,770 $61,256
217,490
55,082
105,070
150,207709,635–
214,145

48,062
84,680174,615
49,841
88,260132,829
679,580
7,172
227,767$

1,554,655 $

1,492,806$

1,006,284 $
10,132
6,866
402,326

955,978–
36,701
382,099

Subordinated debentures
Shareholders’ equity$(1)

October 31

1,425,608

1,374,778

11,386
117,661

9,964
108,064

1,554,655 $

1,492,806

Bank refers primarily to regulated deposit-taking institutions and securities firms.

Condensed Statements of Income and Comprehensive Income
For the year ended
October 31

October 31

2023

2022

56,495 $44,174

27,791
12,846

Net interest income
Non-interest income (2)12,321
5,390

14,945
5,425

Total revenue

17,711

20,370

Provision for credit losses
Non-interest expense

2,002
11,780579
10,175

Income before income taxes
Income taxes

3,929
1,874

9,616
2,276

Net income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries

2,055
12,804

7,340
8,454

14,859 $15,794251

5,810

15,110 $21,604(Millions of Canadian dollars)Interest and dividend income (1)Interest expense$

Net income$

Other comprehensive income (loss), net of taxes
Total comprehensive income
(1)
(2)

232

$

Includes dividend income from investments in subsidiaries and associated companies of $25 million (October 31, 2022 – $11 million).
Includes a nominal share of income (loss) from associated companies (October 31, 2022 – nominal).

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Condensed Statements of Cash Flows
For the year ended(Millions of Canadian dollars)

Cash flows from operating activities
Net income
Adjustments to determine net cash from operating activities:
Change in undistributed earnings of subsidiaries
Change in deposits, net of securitizations
Change in loans, net of securitizations
Change in trading securities
Change in obligations related to assets sold under repurchase agreements and securities
loanedChange in assets purchased under reverse repurchase agreements and securities borrowed
Change in obligations related to securities sold short
Other operating activities, net$

Net cash from (used in) operating activities

October 31

October 31

2023

2022

14,859 $15,794(12,804)
50,306(30,055)(12,832)(8,454)
101,145(78,288)(10,348)

21,954(17,378)
(819)
5,000

24,133(7,239)
3,024
2,385

18,231

42,152

Cash flows from investing activities
Change in interest-bearing deposits with banks
Proceeds from sales and maturities of investment securities
Purchases of investment securities
Net acquisitions of premises and equipment and other intangibles
Change in cash invested in subsidiaries
Change in net funding provided to subsidiaries

23,424
127,965(153,099)(2,075)(3,802)(12,531)(27,784)
59,304(71,509)(1,180)(2,514)(36,981)

Net cash from (used in) investing activities(20,118)(80,664)

Cash flows from financing activities
Issuance of subordinated debentures
Repayment of subordinated debentures
Issue of common shares, net of issuance costs
Common shares purchased for cancellation
Issue of preferred shares and other equity instruments, net of issuance costs
Redemption of preferred shares and other equity instruments
Dividends paid on shares and distributions paid on other equity instruments
Repayment of lease liabilities

1,500
(110)
65
–
–
–
(5,549)
(311)

1,000
–
51
(5,426)749(155)(6,960)(302)

Net cash from (used in) financing activities(4,405)(11,043)

Net change in cash and due from banks
Cash and due from banks at beginning of year

(6,292)48,062(49,555)
97,617$

41,770 $48,062$35,104 $49,098
2,628
2,604

7,801
21,332
2,618
4,641

Cash and due from banks at end of year
Supplemental disclosure of cash flow information
Amount of interest paid
Amount of interest received
Amount of dividends received
Amount of income taxes paid

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2023

233

Note 33 Principal subsidiaries

As at October 31, 2023

(Millions of Canadian dollars)

Carrying value ofvoting shares ownedby the Bank (3)Principal subsidiaries (1)Principal office address (2)Royal Bank Holding Inc.
RBC Direct Investing Inc.
RBC Insurance Holdings Inc.
RBC Life Insurance Company
Investment Holdings (Cayman) Limited
RBC (Barbados) Funding Ltd.
Capital Funding Alberta Limited
RBC Global Asset Management Inc.
RBC Investor Services Trust
RBC (Barbados) Trading Bank Corporation

Toronto, Ontario, Canada
Toronto, Ontario, Canada
Mississauga, Ontario, Canada
Mississauga, Ontario, Canada
George Town, Grand Cayman, Cayman Islands
St. James, Barbados
Calgary, Alberta, Canada
Toronto, Ontario, Canada
Toronto, Ontario, Canada
St. James, Barbados

RBC US Group Holdings LLC (2)RBC USA Holdco Corporation (2)RBC Capital Markets, LLC (2)City National Bank (2)Toronto, Ontario, Canada
New York, New York, U.S.
New York, New York, U.S.
Los Angeles, California, U.S.

32,278

RBC Dominion Securities Limited
RBC Dominion Securities Inc.

Toronto, Ontario, Canada
Toronto, Ontario, Canada

15,290Royal Bank Mortgage Corporation

Toronto, Ontario, Canada

6,277

RBC Europe Limited

London, England

2,977

The Royal Trust Company

Montreal, Quebec, Canada

1,367Royal Trust Corporation of Canada

Toronto, Ontario, Canada

553

(1)
(2)

(3)

$

85,823

The Bank directly or indirectly controls each subsidiary.
Each subsidiary is incorporated or organized under the laws of the state, province or country in which the principal office is situated, except for RBC US Group Holdings
LLC and RBC USA Holdco Corporation which are incorporated under the laws of the State of Delaware, U.S., RBC Capital Markets, LLC, which is organized under the lawsof the State of Minnesota, U.S., and City National Bank which is a national bank, chartered under the laws of the United States of America.
The carrying value of voting shares is stated as the Bank’s equity in such investments.

Certain of our subsidiaries, joint ventures and associates are subject to regulatory requirements of the jurisdictions in which they
operate. When these subsidiaries, joint ventures and associates are subject to such requirements, they may be restricted fromtransferring to us our share of their assets in the form of cash dividends, loans or advances. As at October 31, 2023, restricted net
assets of these subsidiaries, joint ventures and associates were $50 billion (October 31, 2022 – $44 billion).

234

Royal Bank of Canada: Annual Report 2023

Consolidated Financial Statements

Ten-year statistical review
Condensed Balance Sheets(Millions of Canadian dollars) (1)AssetsCash and due from banks
Interest-bearing deposits with banks
Securities, net of applicable allowance (2)Assets purchased under reverse repurchaseagreements and securities borrowed
Loans, net of allowance
Other

2023

2022

2021

2020

72,397108,011318,223$ 113,846
79,638284,724$ 118,888
39,013
275,814340,191
852,773
269,223

317,845819,965
280,778

307,903
717,575
202,637

313,015
660,992
216,826

306,961
618,856
189,459

294,602576,818
173,768

220,977
542,617
169,811

186,302521,604
193,479

174,723472,223
176,612

135,580435,229
144,773

Total assets$2,004,992$1,917,219$1,706,323$1,624,548$1,428,935$1,334,734$1,212,853$1,180,258$1,074,208$ 940,550

Liabilities
Deposits (3)Other (3)Subordinated debentures$1,231,687
644,159
11,386$1,208,814
590,205
10,025$1,100,831
497,137
9,593$1,011,885
516,0299,867$ 886,005
449,490
9,815$ 836,197
409,451
9,131$ 789,036
340,1249,265$ 757,589
341,295
9,762$ 697,227
305,675
7,362$ 614,100
264,088
7,859

Total liabilities$1,887,232$1,809,044$1,607,561$1,537,781$1,345,310$1,254,779$1,138,425$1,108,646$1,010,264$ 886,047

117,661

108,064

98,667

86,664

83,52379,86173,82971,017

62,146

52,690

99

111

95

103

102

94

599

595

1,798

1,813

117,760

108,175

98,762

86,767

83,62579,95574,42871,612

63,94454,503$2,004,992$1,917,219$1,706,323$1,624,548$1,428,935$1,334,734$1,212,853$1,180,258$1,074,208$ 940,550$

Equity attributable to shareholders
Non-controlling interest
Total equity
Total liabilities and equity

61,98971,086
409,730$

2019$

26,31038,345
249,0042018$

30,20936,471
222,866

2017$

28,40732,662
218,379

2016$

14,92927,851
236,0932015$

12,452
22,690215,5082014$

17,421
8,399
199,148

Condensed Income Statements(Millions of Canadian dollars) (1)Net interest income (3)Non-interest income (3), (4)Total revenue (4)Provision for credit losses (5)Insurance policyholder benefits, claims andacquisition expense
Non-interest expense (4)Net income

$

$

2023
25,12931,00056,1292,468
4,022
31,173
14,866$$2022
22,71726,26848,985484
1,783
26,60915,807$$2021
20,002 $29,691
49,693(753)

2020
20,835
26,34647,181
4,351

3,891
25,924
16,0503,683
24,758
11,437

$

$

$

2019
19,74926,25346,002
1,864
4,085
24,13912,871$$

2018
17,952
24,62442,576
1,307
2,676
22,833
12,431$$

2017
16,92623,743
40,6691,150
3,053
21,794
11,469$$2016
16,531
22,26438,795
1,546
3,424
20,526
10,458$$

2015
14,771
20,93235,703
1,097
2,963
19,02010,026$$2014
14,11619,992
34,108
1,164
3,573
17,661
9,004

Other Statistics – reported(Millions of Canadian dollars, except
percentages and per share amounts) (1)
PROFITABILITY MEASURES
Earnings per shares – basic– diluted
Return on common equity (6), (7)Return on risk-weighted assets
Efficiency ratio (4)KEY RATIOSPCL on impaired loans as a % of average net
loans and acceptances (8)Net interest margin (average earning assets,net) (3), (6)SHARE INFORMATION
Common shares outstanding (000s) –end of period
Dividends declared per common share
Dividend yield (9)Dividend payout ratio
Book value per share (10)Common share price (RY on TSX) (11)Market capitalization (TSX) (11)Market price to book value
CAPITAL MEASURES – CONSOLIDATED (12)Common Equity Tier 1 capital ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
TLAC ratio
TLAC leverage ratio

(1)

(2)
(3)

(4)
(5)

(6)
(7)
(8)
(9)
(10)
(11)
(12)

n.a.

2023
$
$

10.51
10.50
14.2%
2.49%
55.5%

2022
$
$

11.08
11.06
16.4%
2.68%
54.3%

2021
$
$

11.08
11.06
18.6%
2.90%
52.2%

2020
$
$

7.84
7.82
14.2%
2.10%
52.5%

2019
$
$

8.78
8.75
16.8%
2.52%
52.5%

2018
$
$

8.39
8.36
17.6%
2.55%
53.6%

2017
$
$

7.59
7.56
17.0%
2.49%
53.6%

2016
$
$

6.80
6.78
16.3%
2.34%
52.9%

2015
$
$

6.75
6.73
18.6%
2.45%
53.3%

2014
$
$

6.03
6.00
19.0%
2.52%
51.8%

0.21%

0.10%

0.10%

0.24%

0.27%

0.20%

0.21%

0.28%

0.24%

0.27%

1.50%

1.48%

1.48%

1.55%

1.61%

1.64%

1.69%

1.70%

1.71%

1.86%

1,382,911
4.96
3.7%
45%
$
72.85
$ 126.05
174,3161.73

1,424,525
$
4.32
3.8%
39%
$
64.57
$ 128.82
183,507
2.00

1,422,473
4.29
4.7%
55%
$
56.75
$
93.16
132,5181.64

1,430,096
$
4.07
4.1%
46%
$
54.41
$ 106.24
151,933
1.95

1,438,794
$
3.77
3.7%
45%
$
51.12
$
95.92
138,009
1.88

1,452,535
3.48
3.8%
46%
$
46.41
$ 100.87
146,5542.17

1,484,235
3.24
4.3%
48%
$
43.32
$
83.80
124,476
1.93

1,443,955
3.08
4.1%
46%
$
39.51
$
74.77
107,925
1.89

1,443,125
2.84
3.8%
47%
$
33.69
$
80.01
115,393
2.38

12.6%
13.8%
15.4%
4.4%
26.4%
8.5%

13.7%
14.9%
16.7%
4.9%
n.a.
n.a.

12.5%
13.5%
15.5%
4.8%
n.a.
n.a.

12.1%
13.2%
15.2%
4.3%
n.a.
n.a.

11.5%
12.8%
14.6%
4.4%
n.a.
n.a.

10.9%
12.3%
14.2%
4.4%
n.a.
n.a.

10.8%
12.3%
14.4%
4.4%
n.a.
n.a.

10.6%
12.2%
14.0%
4.3%
n.a.
n.a.

9.9%
11.4%
13.4%
n.a.
n.a.
n.a.

1,400,511
5.34
4.3%
51%
$
78.79
$
110.76
155,121
1.41
$

14.5%
15.7%
17.6%
4.3%
31.0%
8.5%

$

$

$

$

$

$

Effective November 1, 2019, we adopted IFRS 16 Leases. Results from periods prior to November 1, 2019 are reported in accordance with IAS 17 Leases in this 2023 Annual
Report. Effective November 1, 2018, we adopted IFRS 15 Revenue from Contracts with Customers. Results from periods prior to November 1, 2018 are reported inaccordance with IAS 18 Revenue in this 2023 Annual Report. Effective November 1, 2017, we adopted IFRS 9 Financial Instruments (IFRS 9). Results from periods prior to
November 1, 2017 are reported in accordance with IAS 39 Financial Instruments: Recognition and Measurement (IAS 39) in this 2023 Annual Report.
Securities are comprised of trading and investment securities. Under IFRS 9, investment securities represent debt and equity securities at FVOCI and debt securities atamortized cost, net of the applicable allowance. Under IAS 39, investment securities represented available-for-sale securities and held-to-maturity securities.
Commencing Q4 2019, the interest component and the accrued interest payable recorded on certain deposits carried at FVTPL previously presented in trading revenue
and deposits, respectively are presented in net interest income and other liabilities respectively. As at November 1, 2016, comparative amounts have been reclassified toconform with this presentation.
Effective Q4 2017, service fees and other costs incurred in association with certain commissions and fees earned are presented on a gross basis in non-interest expense.
As at November 1, 2014, comparative amounts have been reclassified to conform with this presentation.
Under IFRS 9, PCL relates primarily to loans, acceptances, and commitments, and also applies to all financial assets except for those classified or designated as FVTPL
and equity securities designated as FVOCI. Prior to the adoption of IFRS 9, PCL related only to loans, acceptances, and commitments. PCL on loans, acceptances, andcommitments is comprised of PCL on impaired loans (Stage 3 PCL under IFRS 9 and PCL on impaired loans under IAS 39) and PCL on performing loans (Stage 1 andStage 2 PCL under IFRS 9 and PCL on loans not yet identified as impaired under IAS 39).
Average amounts are calculated using methods intended to approximate the average of the daily balances for the period. This includes Average common equity used in
the calculation of ROE. For further details, refer to the Key performance and non-GAAP measures section of the MD&A.
This measure may not have a standardized meaning under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed
by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section of the MD&A.
PCL on impaired loans represents Stage 3 PCL under IFRS 9 and PCL on impaired loans under IAS 39. Stage 3 PCL under IFRS 9 is comprised of lifetime credit losses ofcredit-impaired loans, acceptances and commitments.
Defined as dividends per common share divided by the average of the high and low share price in the relevant period.
Calculated as common equity divided by the number of common shares outstanding at the end of the period.
Based on TSX closing market price at period-end.
Capital ratios are calculated using OSFI’s CAR guideline, the Leverage ratio is calculated using OSFI’s LR guideline, and both the TLAC and TLAC leverage ratios arecalculated using OSFI’s TLAC guideline. The results for the year ended October 31, 2023 reflect our adoption of the revised CAR and LR guidelines that came into effect in
Q2 2023 as part of OSFI’s implementation of the Basel III reforms. For further details, refer to the Capital management section.
not applicableTen-year statistical review

Royal Bank of Canada: Annual Report 2023

235

Shareholder Information
Corporate headquarters
Street address:
Royal Bank of Canada
200 Bay Street
Toronto, Ontario M5J 2J5
CanadaTel: 1-888-212-5533
Mailing address:
P.O. Box 1
Royal Bank Plaza
Toronto, Ontario M5J 2J5
Canadawebsite: rbc.com
Transfer Agent and Registrar
Main Agent:
Computershare Trust Company
of Canada
100 University Avenue North
Tower, 8th Floor
Toronto, Ontario M5J 2Y1 Canada
Tel: 1-866-586-7635 (Canada andthe U.S.) or 514-982-7555(International)
Fax: 1-888-453-0330 (Canada andthe U.S.) or 416-263-9394(International)
website: computershare.com/rbc
email: service@computershare.com
Co-Transfer Agent (U.S.):
Computershare Trust
Company, N.A.
150 Royall Street, Suite 101
Canton, Massachusetts 02021
U.S.A.
Co-Transfer Agent (U.K.):
Computershare Investor
Services PLC
Securities Services – Registrars
P.O. Box 82, The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
U.K.
Stock exchange listings(Symbol: RY)
Common shares are listed on:
Canada – Toronto Stock
Exchange (TSX)
U.S. – New York Stock Exchange(NYSE)
Preferred shares AZ, BB, BD, BF,
BH, BI and BO are listed on the
TSX.

Valuation day price
For Canadian income tax purposes,
Royal Bank of Canada’s common
stock was quoted at $29.52 per shareon the Valuation Day (December 22,1971). This is equivalent to $7.38 pershare after adjusting for the two-forone stock split of March 1981 and thetwo-for- one stock split of February
1990. The one-for-one stock dividends
in October 2000 and April 2006 did notaffect the Valuation Day amount forour common shares.
Shareholder contacts
For dividend information, change
in share registration or address,
lost stock certificates, tax forms,
estate transfers, direct registration or
dividend reinvestment, pleasecontact: Computershare Trust
Company of Canada
100 University Avenue North Tower,
8th Floor Toronto, Ontario M5J 2Y1
CanadaTel: 1-866-586-7635 (Canada andthe U.S.) or 514-982-7555(International)
Fax: 1-888-453-0330 (Canada andthe U.S.) or 416-263-9394(International)
email: service@computershare.com

Eligible dividend designation
For purposes of the Income Tax Act(Canada) and any corresponding
provincial and territorial tax
legislation, all dividends (and deemed
dividends) paid by RBC to Canadianresidents on both its common andpreferred shares, are designated as“eligible dividends”, unless statedotherwise.
Common share repurchases
As at October 31, 2023, we did nothave an active normal course issuerbid (NCIB). For further details, refer tothe Capital management section.

2024 Quarterly earnings
release dates
First quarterFebruary 28
Second quarter May 30
Third quarter
August 28
Fourth quarter December 42024 Annual Meeting
The Annual Meeting ofCommon Shareholders will beheld on Thursday, April 11,
2024.

Dividend dates for 2024
Subject to approval by the Board of Directors

Common and preferred sharesseries AZ, BB, BD, BF, BH, BI and BO

Preferred shares series BT

Recorddates
January 25
April 25
July 25
October 24

Payment
dates
February 23
May 24
August 23
November 22

February 16
August 16

February 23
August 23

Governance
Summaries of the significant ways in which corporate governancepractices followed by RBC differ from corporate governance practices
required to be followed by U.S. domestic companies under the NYSE
listing standards are available on our website at rbc.com/governance.

Financial analysts, portfolio
managers, institutional
investors
For financial information inquiries,
please contact: Investor Relations
Royal Bank of Canada
200 Bay Street
South Tower
Toronto, Ontario M5J 2J5
Canadaemail: invesrel@rbc.com
or visit our website at
rbc.com/investorrelations
Direct deposit service
Shareholders in Canada and the U.S.
may have their common share
dividends deposited directly to theirbank account by electronic funds
transfer. To arrange for this service,please contact our Transfer Agent andRegistrar, Computershare Trust
Company of Canada.
International shareholders (other thanholders in the U.S. or Canada) may beable to receive their dividend and/or
distribution payments in the currencyof their choice. Computershare offers
an International Currency Exchange
service that enables RBC’s
international shareholders to receive
their dividend and/or distribution
payments in the currency of theirchoice. Please refer toinvestorcentre.com/rbc.

Information contained in or otherwise accessible through the websites mentioned in this report to shareholders does not form a part of this report. All references
to websites are inactive textual references and are for your information only.
® Registered Trademarks of Royal Bank of Canada. ‡ All other trademarks are the property of their respective owner(s).

236Royal Bank of Canada: Annual Report 2023

Shareholder Information

rbc.com/ar2023
81104 (12/2023)