31 December 2025 Pillar 3 Report | <\/p>\n
UBS Group | Overview of risk-weighted assets18 <\/p>\n
Key differences between the internal model approach and the standardized approach <\/p>\n
Internal model approach <\/p>\n
Standardized approach <\/p>\n
Key impact <\/p>\n
Risk weighting <\/p>\n
Reliance on internal ratings where each <\/p>\n
counterparty \/ transaction receives a rating. <\/p>\n
Reliance on external credit assessment institutions <\/p>\n
where permitted in the regulatory framework.<\/p>\n
Modelled approach produces RWA that is more risk <\/p>\n
sensitive. <\/p>\n
Granular risk-sensitive risk weight differentiation <\/p>\n
via individual probability of default (PD) and LGD <\/p>\n
for mortgages. <\/p>\n
Less granular risk weights based on loan-to-value <\/p>\n
(LTV)bands for mortgages. <\/p>\n
The Group\u2019s residential mortgage portfolio is <\/p>\n
focused on the Swiss market, and the Group has <\/p>\n
robust review processes in place concerning <\/p>\n
borrowers\u2019 ability to repay. This results in the <\/p>\n
Group\u2019s residential mortgage portfolio having a low <\/p>\n
average LTV and results in an average riskweight <\/p>\n
of around 20% under the advanced IRB (A-IRB) <\/p>\n
approach. <\/p>\n
Modelled LGD captures transaction quality <\/p>\n
features including collateralization. Under the <\/p>\n
foundation internal ratings-based (F-IRB) <\/p>\n
approach, the LGD values are calculated based <\/p>\n
on the rules set by FINMA. <\/p>\n
No differentiation for transaction features (except <\/p>\n
where claim is subordinated). <\/p>\n
Impact relevant across all asset classes. <\/p>\n
Credit risk mitigation recognized via risk-sensitive <\/p>\n
LGD or exposure at default (EAD).<\/p>\n
Limited recognition of credit risk mitigation. <\/p>\n
Standardized approach RWA is higher than <\/p>\n
modelled RWA for most transaction types.<\/p>\n
Wider variety of eligible collateral. <\/p>\n
Restricted list of eligible collateral. <\/p>\n
Limited recognition of collateral results in higher <\/p>\n
RWA for Lombard lending and securities financing <\/p>\n
transactions (SFTs). <\/p>\n
Repo value-at-risk (VaR)permits the use of VaR <\/p>\n
models to estimate exposure and collateral for <\/p>\n
SFTs. Approach permits full diversification and <\/p>\n
netting across all collateral types. <\/p>\n
Conservative and crude regulatory haircuts with <\/p>\n
limited risk sensitivity. <\/p>\n
The effects of guarantees and credit derivatives <\/p>\n
are considered through either adjusting PD <\/p>\n
and \/ or LGD estimates. UBS applies the F-IRB <\/p>\n
approach for guarantee recognition. <\/p>\n
In case of eligible guarantees and credit derivatives, <\/p>\n
substitution is applied and the risk weight <\/p>\n
applicable to the protection provider can be<\/p>\n
assigned to the protected portion of the underlying <\/p>\n
exposure. <\/p>\n
CCF <\/p>\n
A credit conversion factor (CCF) is applied to <\/p>\n
model expected future drawdowns over the <\/p>\n
12-month period, irrespective of the actual <\/p>\n
maturity of a particular transaction. The CCF <\/p>\n
includes downturn adjustments and is the result <\/p>\n
of analysis of internal data and expert opinion. <\/p>\n
Credit exposure equivalents are determined by <\/p>\n
applying CCFs to off-balance sheet items. The CCFs <\/p>\n
vary based on product type, maturity and the <\/p>\n
underlying contractual agreements. <\/p>\n
Modelled CCFs can be more tailored and <\/p>\n
differentiated. <\/p>\n
EAD for derivatives <\/p>\n
Internal model method (IMM) facilitates the use <\/p>\n
of a Monte Carlo simulation to estimate <\/p>\n
exposure. <\/p>\n
The standardized approach for CCR is calculated as <\/p>\n
the replacement costs plus regulatory add-ons that <\/p>\n
take into account potential future market moves at <\/p>\n
predetermined fixed rates. <\/p>\n
For large, diversified derivatives portfolios, <\/p>\n
standardized EAD is higher than modelled EAD. <\/p>\n
Application of multiplier on IMM exposure <\/p>\n
estimate. <\/p>\n
Differentiates add-ons by five exposure types and <\/p>\n
three maturity buckets only. <\/p>\n
Variability in holding period applied to <\/p>\n
collateralized transactions, reflecting liquidity <\/p>\n
risks. <\/p>\n
Limited netting can be recognized. <\/p>\n
The repo VaR approach is a model based on a <\/p>\n
Monte Carlo simulation and historical calibration <\/p>\n
to estimate exposure, computed as quantile <\/p>\n
exposure. <\/p>\n
The comprehensive approach considers the adjusted <\/p>\n
exposure after applicable supervisory haircuts on <\/p>\n
both the exposure and the collateral received to <\/p>\n
take account of possible future fluctuations in the <\/p>\n
value of either the exposure or the collateral. <\/p>\n
For large, diversified SFT portfolios, standardized <\/p>\n
EAD is higher than modelled EAD. <\/p>\n
Maturity in risk weight <\/p>\n
Regulatory RWA function considers maturity: the <\/p>\n
longer the maturity, the higher the risk weight. <\/p>\n
No differentiation for maturity of transactions, <\/p>\n
except for interbank exposures. <\/p>\n
Model approach produces lower RWA for high-<\/p>\n
quality, short-term transactions. <\/p>\n
Credit valuation <\/p>\n
adjustment <\/p>\n
Not applicable under the final Basel III standards. <\/p>\n
UBS calculates the CVA risk capital requirement <\/p>\n
using both the standardized approach (SA-CVA) <\/p>\n
and the full basic approach (BA-CVA) in line with <\/p>\n
the final Basel III standards. The SA-CVA uses <\/p>\n
sensitivities to market risk factors (e.g. interest rates <\/p>\n
and credit spreads) and uses those sensitivities with <\/p>\n
regulatory-prescribed risk weights and correlations <\/p>\n
to arrive at a capital charge. The BA-CVA approach <\/p>\n
is simpler and less risk sensitive. <\/p>\n
Where the BA-CVA and the SA-CVA are applied <\/p>\n
under the output floor calculation, the application <\/p>\n
of internal ratings is not permitted. <\/p>\n
Securitization exposures <\/p>\n
in the banking book <\/p>\n
The regulatory capital requirements are <\/p>\n
calculated using a hierarchy of approaches. First, <\/p>\n
the securitization internal ratings-based approach <\/p>\n
(SEC-IRBA) is applied, if possible. If this approach <\/p>\n
cannot be applied, one of the standardized <\/p>\n
If the SEC-IRBA cannot be applied, the regulatory <\/p>\n
capital requirements are calculated using the <\/p>\n
following hierarchy of approaches: the securitization <\/p>\n
external ratings-based approach or the <\/p>\n
securitization standardized approach (SEC-SA). <\/p>\n
Otherwise, a 1,250% risk weight is applied as a <\/p>\n
fallback. <\/p>\n","protected":false},"excerpt":{"rendered":"31 December 2025 Pillar 3 Report | UBS Group | Overview of risk-weighted assets18 Key differences between the…\n","protected":false},"author":2,"featured_media":2861,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[7540,17096,17099,17094,17097,17100,41,17095,17,17098,223,2823],"class_list":{"0":"post-28226","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-switzerland","8":"tag-basel-iii","9":"tag-cet1-ratio","10":"tag-liquidity-coverage-ratio","11":"tag-pillar-3-report","12":"tag-risk-weighted-assets","13":"tag-share-repurchases","14":"tag-swiss","15":"tag-swiss-capital-rules","16":"tag-switzerland","17":"tag-tlac","18":"tag-ubs","19":"tag-ubs-stock"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ch\/116199394121903919","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts\/28226","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/comments?post=28226"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/posts\/28226\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/media\/2861"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/media?parent=28226"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/categories?post=28226"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ch\/wp-json\/wp\/v2\/tags?post=28226"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}