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MD&A - Risk management and control - Market Risk
 12 Months Ended
Dec. 31, 2021
Entity [Table]  
Disclosure Of Market Risk Explanatory
Market
 
risks
 
arise
 
from
 
both
 
trading
 
and
 
non-trading
 
business
activities.
Trading
 
market
 
risks
 
are mainly
 
connected
 
with
 
primary
 
debt and
equity underwriting
 
and
 
securities and
 
derivatives trading
 
for
market-making
 
and client
 
facilitation
 
in our Investment
 
Bank, as
well as
 
the remaining
 
positions
 
in Non-core
 
and Legacy
 
Portfolio
in Group
 
Functions
 
and our
 
municipal
 
securities
 
trading
 
business
in Global Wealth
 
Management.
Non-trading
 
market
 
risks
 
arise
 
predominantly
 
in
 
the
 
form
 
of
interest
 
rate
 
and
 
foreign
 
exchange
 
risks
 
connect
ed
 
with
personal
 
banking
 
and
 
lending
 
in
 
our
 
wealth
 
management
business, our Swiss
 
personal and corporate
 
banking business,
the Investment Bank’s lending business,
 
and treasury activities.
Group
 
Treasury
 
assumes
 
market
 
risks
 
in
 
the
 
process
 
of
managing
 
interest
 
rate
 
risk,
 
structural
 
foreign
 
exchange
 
risk
and the Group’s liquidity and funding profile, including HQLA.
Equity and debt investments can also give rise to market
 
risks,
as
 
can
 
some
 
aspects
 
of
 
employee
 
benefits,
 
such
 
as
 
defined
benefit pension schemes.
Market risk limits are set for the Group, the business divisions,
Group Treasury and Non-core and Legacy Portfolio at granular
levels
 
in
 
the
 
various business
 
lines,
 
reflecting
 
the nature
 
and
magnitude of the market risks.
Management VaR
 
measures exposures
 
under the
 
market risk
framework,
 
including
 
trading
 
market
 
risks
 
and
 
some
 
non-
trading market risks. Non-trading
 
market risks not included
 
in
VaR
 
are
 
also
 
covered
 
in
 
the
 
risks
 
controlled
 
by
 
Market
 
&
Treasury Risk Control, as set out below.
Our
 
primary
 
portfolio
 
measures
 
of
 
market
 
risk
 
are
 
liquidity-
adjusted
 
stress
 
(LAS)
 
loss
 
and
 
VaR.
 
Both
 
are
 
common
 
to
 
all
business divisions and
 
subject to
 
limits that
 
are approved
 
by the
Board of Directors (the BoD).
These
 
measures
 
are
 
complemented
 
by
 
concentration
 
and
granular limits for general and specific market
 
risk factors. Our
trading
 
businesses
 
are
 
subject
 
to
 
multiple
 
market
 
risk
 
limits,
which
 
take
 
into
 
account
 
the
 
extent
 
of
 
market
 
liquidity
 
and
volatility,
 
available
 
operational
 
capacity,
 
valuation
 
uncertainty
and, for our single-name exposures, issuer credit quality.
Trading
 
market
 
risks
 
are
 
managed
 
on
 
an
 
integrated
 
basis
 
at
portfolio
 
level. As
 
risk factor
 
sensitivities change
 
due to
 
new
transactions, transaction
 
expiries or
 
changes in
 
market levels,
risk factors
 
are dynamically
 
rehedged to
 
remain within
 
limits.
Thus
 
we
 
do
 
not
 
generally
 
seek
 
to
 
distinguish
 
in
 
the
 
trading
portfolio between specific positions and associated hedges.
Issuer
 
risk
 
is
 
controlled
 
by
 
limits
 
applied
 
at
 
business
 
division
level
 
based
 
on
 
jump-to-zero
 
measures,
 
which
 
estimate
maximum
 
default
 
exposure
 
(the
 
default
 
event
 
loss
 
assuming
zero recovery).
Non-trading foreign exchange
 
risks are
 
managed under
 
market
risk limits, with the exception
 
of Group Treasury management
of consolidated capital activity.
Our Market &
 
Treasury Risk Control
 
function applies a
 
holistic
risk
 
framework,
 
set
ting
 
the
 
appetite
 
for
 
treasury
-
related
 
risk
-
taking
 
activities
 
across
 
the
 
Group.
 
A
 
key
 
element
 
of
 
the
framework is
 
an overarching
 
economic value sensitivity
 
limit, set
by the
 
BoD. Th
 
is limit
 
is linked
 
to
 
the
 
level
 
of Basel III
 
common
equity
 
tier 1
 
(CET1)
 
capital,
 
and takes
 
into account
 
risks arising
from interest rates,
 
foreign exchange and
 
credit spreads. Also,
 
the
sensitivity
 
of
 
net
 
interest
 
income
 
to
 
changes
 
in
 
interest
 
rates
 
is
monitored against targets set by the Group CEO, so as
 
to analyze
the outlook and volatility
 
of net interest income
 
based on market-
expected interest rates. Limits
 
are also set by
 
the BoD to balance
the effect
 
of foreign
 
exchange movements
 
on our
 
CET1
 
capital
and
 
CET1
 
capital
 
ratio.
 
Non-trading
 
interest
 
rate
 
and
 
foreign
exchange
 
risks
 
are
 
included
 
in
 
Group-wide
 
statistical
 
and
 
stress
testing metrics, which flow into our risk appetite framework.
Equity
 
and
 
debt
 
investments
 
are
 
subject
 
to
 
a
 
range
 
of
 
risk
controls,
 
including
 
preapproval of
 
new
 
investments
 
by
 
business
management
 
and
 
Risk
 
Control
 
and
 
regular
 
monitoring
 
and
reporting.
 
They
 
are
 
also
 
included
 
in
 
Group-wide
 
statistical
 
and
stress testing metrics.
Audited |
 
VaR is a statistical
 
measure of market
 
risk, representing the
potential
 
market
 
risk
 
losses
 
over
 
a
 
set
 
time
 
horizon
 
(holding
period)
 
at
 
an
 
established
 
level
 
of
 
confidence.
 
VaR
 
assumes
 
no
change in the
 
Group’s trading positions over
 
the set time
 
horizon.
We
 
calculate
 
VaR
 
daily.
 
The
 
profit
 
or
 
loss
 
distribution
 
VaR
 
is
derived from our
 
internally developed
 
VaR model, which
 
simulates
returns over the
 
holding period for
 
those risk factors
 
our trading
positions are sensitive to, and subsequently quantifies the profit /
loss effect
 
of these
 
risk factor
 
returns on
 
trading positions.
 
Risk
factor
 
returns
 
associated
 
with
 
general
 
interest
 
rate,
 
foreign
exchange and commodities risk
 
factor classes are based on
 
a pure
historical
 
simulation
 
approach,
us
ing
a
 
five
-
year
 
look
-
back
window. Risk factor returns
 
for selected issuer-based risk factors,
e.g., equity price and credit
 
spreads, are split into systematic and
residual
 
issuer-specific
 
components
 
using
 
a
 
factor
 
model
approach. Systematic
 
returns are
 
based on
 
historical simulation,
and
 
residual
 
returns
 
on
 
a
 
Monte
 
Carlo
 
simulation.
 
VaR
 
model
profit
 
or
 
loss distribution
 
is derived
 
from
 
the
 
sum of
 
systematic
and residual
 
returns in
 
such a
 
way that
 
we consistently
 
capture
systematic and
 
residual risk.
 
Correlations among
 
risk factors
 
are
implicitly
 
captured
 
via
 
a
 
historical
 
simulation
 
approach.
 
When
modeling
 
risk
 
factor
 
returns
 
we
 
consider
 
the
 
stationarity
properties
 
of
 
the
 
historical
 
time
 
series
 
of
 
risk
 
factor
 
changes.
Depending on the stationarity properties of
 
the risk factors within
a given
 
factor class,
 
we model
 
the factor
 
returns using
 
absolute
returns or logarithmic returns.
 
Risk factor return distributions
 
are
updated fortnightly.
Our VaR
 
model does
 
not
 
have full
 
revaluation
 
capability, but
we source full revaluation grids
 
and sensitivities from front-office
systems, enabling us
 
to capture material
 
non-linear profit or
 
loss
effects.
We
 
use
 
a
 
single
 
VaR
 
model
 
for
 
both
 
internal
 
management
purposes
 
and
 
determining
 
market
risk
R
WA,
 
although
 
we
consider
 
different
 
confidence
 
levels
 
and
 
time
 
horizons.
 
For
internal
 
management
 
purposes,
 
we
 
establish
 
risk
 
limits
 
and
measure exposures
 
using VaR
 
at a
95
% confidence
 
level with
 
a
1-day
 
holding
 
period, aligned
 
to
 
the
 
way we
 
consider
 
the risks
associated with
 
our trading
 
activities. The
 
regulatory measure of
market risk used to
 
underpin the market risk
 
capital requirement
under Basel III requires
 
a measure equivalent
 
to a
99
% confidence
level using a 10-day holding
 
period. To calculate a 10-day
 
holding
period
 
VaR,
 
we
use
10
-
day
 
risk
 
factor
 
returns,
with
all
observations equally weighted.
Additionally,
 
the
 
portfolio
 
population
 
for
 
management
 
and
regulatory
 
VaR
 
is
 
slightly
 
different.
 
The
 
one
 
for
 
regulatory
 
VaR
meets
 
regulatory
 
requirements
 
for
 
inclusion
 
in
 
regulatory
 
VaR.
Management
 
VaR
 
includes
 
a
 
broader
 
range
 
of
 
positions.
 
For
example,
 
regulatory
 
VaR
 
excludes
 
credit
 
spread
 
risks
 
from
 
the
securitization
 
portfolio,
 
which
 
are
 
treated
 
instead
 
under
 
the
securitization approach for regulatory purposes.
We also use
 
stressed VaR (SVaR)
 
for the calculation
 
of market
risk RWA. SVaR uses broadly the
 
same methodology as regulatory
VaR and is
 
calculated using the
 
same population, holding
 
period
(10-day) and
 
confidence level
 
(
99
%). Unlike
 
regulatory VaR,
 
the
historical
 
data
 
set
 
for
 
SVaR
 
is
 
not
 
limited
 
to
 
five
 
years,
 
instead
covering from 1 January
 
2007 to the
 
present. In deriving
 
SVaR, we
seek the largest 10-day holding period VaR for the current Group
portfolio across
 
all
 
one-year look-back
 
windows from
 
1 January
2007 to the present. SVaR is computed weekly.
Audited |
 
Actual realized
 
market risk
 
losses may
 
differ
 
from
 
those
implied by VaR for a variety of reasons.
VaR is calibrated to
 
a specified level of
 
confidence and may
 
not
indicate potential losses beyond this confidence level.
The 1-day time horizon used for VaR for internal management
purposes
 
(10-day
 
for
 
regulatory
 
VaR)
 
may
 
not
 
fully
 
capture
market risk
 
of positions
 
that cannot
 
be closed
 
out or
 
hedged
within the specified period.
In
 
some
 
cases,
 
VaR
 
calculations
 
approximate
 
the
 
effect
 
of
changes in
 
risk factors
 
on the
 
values of
 
positions and
 
portfolios.
This may happen due to the number of risk factors included in
the VaR model needing to be limited.
Effects
 
of extreme
 
market movements
 
are subject to
 
estimation
errors, which
 
may result
 
from non-linear risk
 
sensitivities, and
the potential for actual volatility and correlation levels to differ
from assumptions implicit in VaR calculations.
Using a
 
five-year window
 
means sudden
 
increases in
 
market
volatility will tend
 
not to increase VaR
 
as quickly as the
 
use of
shorter
 
historical observation
 
periods, but
 
such increases
 
will
affect VaR
 
for a longer
 
period of
 
time. Similarly,
 
after periods
of increased volatility, as markets stabilize,
 
VaR predictions will
remain
 
more conservative
 
for a
 
period of
 
time influenced
 
by
the length of the historical observation period.
SVaR is subject to the limitations noted for VaR above, but the
use of one-year data sets avoids the smoothing effect of the five-
year
 
data
 
set
 
used
 
for
 
VaR
 
and
 
the
 
absence
 
of
 
the
 
five-year
window gives a longer history of potential loss events. Therefore,
although
 
the significant
 
period of
 
stress
 
during
 
the
 
2007–2009
financial
 
crisis
 
is
 
no
 
longer
 
contained
 
in
 
the
 
historical
 
five-year
period used for management and regulatory
 
VaR, SVaR continues
to use
 
that data.
 
This approach aims
 
to reduce
 
the procyclicality
of the regulatory capital requirements for market risks.
We recognize
 
that no
 
single measure
 
can encompass
 
all risks
associated
 
with
 
a
 
position
 
or
 
portfolio.
 
Thus
 
we
 
use
 
a
 
set
 
of
metrics with both overlapping and complementary characteristics
to
 
create
 
a
 
holistic
 
framework
 
that
 
aims
 
to
 
ensure
 
material
completeness
 
of
 
risk
 
identification
 
and
 
measurement.
 
As
 
a
statistical aggregate risk measure, VaR supplements
 
our liquidity-
adjusted stress and comprehensive stress testing frameworks.
We also
 
have a
 
framework to
 
identify and
 
quantify potential
risks not
 
fully captured by
 
our VaR model
 
and refer to
 
such risks
as risks not in VaR.
 
The framework underpins these potential risks
with regulatory capital, calculated as a multiple of regulatory VaR
and stressed VaR.
Audited
 
|
 
There
 
were
 
no
material
 
changes
 
to
 
the
 
VaR
 
model
in 2021.
Audited |
 
IRRBB arises
 
from
 
balance sheet
 
positions such
 
as
Loans
and
 
advances
 
to
 
banks
,
Loans
 
and
 
advances
 
to
 
customers
,
Financial assets at
 
fair value not held
 
for trading
,
Financial assets
measured
 
at
 
amortized
 
cost
,
Customer
 
deposits
,
Debt
 
issued
measured
 
at
 
amortized
 
cost
,
 
and
 
derivatives,
 
including
 
those
subject to
 
hedge accounting. Fair
 
value changes to
 
these positions
may
 
affect
 
other
 
comprehensive
 
income
 
(OCI)
 
or
 
the
 
income
statement, depending on their accounting treatment.
Our
 
largest
 
banking
 
book
 
interest
 
rate
 
exposures
 
arise
 
from
customer
 
deposits
 
and
 
lending
 
products
 
in
 
Global
 
Wealth
Management
 
and
 
Personal
 
&
 
Corporate
 
Banking.
 
The
 
inherent
interest
 
rate
 
risks
 
are
 
generally
 
transferred
 
from
 
Global
 
Wealth
Management
 
and
 
Personal
 
&
 
Corporate
 
Banking
 
to
 
Group
Treasury,
 
to
 
manage
 
them
 
centrally. This
 
enables
 
the netting
 
of
interest
 
rate
 
risks
 
across
 
different
 
sources,
 
while
 
leaving
 
the
originating
 
businesses
 
with
 
commercial
 
margin
 
and
 
volume
management. The residual interest
 
rate risk is mainly
 
hedged with
interest rate swaps, to the vast majority of which we apply hedge
accounting.
 
Short-term
 
exposures
 
and
 
high-quality
 
liquid
 
assets
classified as
Financial assets at
 
fair value not
 
held for trading
 
are
hedged with derivatives
 
accounted for on
 
a mark-to-market basis.
Long-term
 
fixed-rate
 
debt
 
issued
 
is
 
hedged
 
with
 
interest
 
rate
swaps designated in fair value hedge accounting relationships.
Risk management and governance
IRRBB
 
is
 
measured
 
using
 
several
 
metrics,
 
the
 
most
 
relevant
 
of
which are the following.
–
 
Interest
 
rate
 
sensitivities
 
to
changes
 
in
 
yield
 
curves
 
are
 
calculated as changes in the present value of
 
future cash flows
irrespective of
 
accounting treatment.
 
These are
 
also the
 
key risk
factors for statistical and stress-based measures, e.g., value-at-
risk
 
and
 
stress
 
scenarios
 
(including
 
EVE
 
sensitivity),
 
and
 
are
measured
 
and
 
reported
 
daily.
 
EVE
 
sensitivity
 
is
 
the
 
exposure
arising from the most adverse regulatory interest rate scenario
after
 
netting
 
across
 
currencies.
As
 
well
 
as
 
the
 
regulatory
measure,
we
appl
y
 
an
 
internal
 
EVE
 
sensitivity
 
me
tric
that
includes
 
additional
 
tier 1
 
(AT1)
 
capital
 
instruments
 
and
modeled
 
interest
 
rate
 
duration
 
assigned
 
to
 
equity,
 
goodwill
and real estate.
–
 
Net interest
 
income (NII) sensitivity
 
assesses NII
 
change over a
set
 
time
 
horizon
 
compared
 
with
 
baseline
 
NII,
 
wh
ich
we
internally calculate by
 
assuming interest rates
 
in all currencies
develop according
 
to their
 
market-implied forward
 
rates and
assum
ing
 
constant
 
business
 
volumes
 
and
 
no
 
specific
management actions.
 
This internally
 
calculated
 
NII sensitivity,
which,
 
unlike
 
the
 
FINMA
 
Pillar 3
 
disclosure
 
requirements,
includes
 
the
 
contribution
 
from cash
 
held
 
at
 
central
 
banks, is
measured and reported monthly.
We actively
 
manage IRRBB,
 
aiming to
 
reduce the
 
volatility of
NII, while keeping the EVE
 
sensitivity within set internal risk
 
limits.
EVE and
 
NII sensitivity
 
are monitored
 
against limits
 
and triggers,
at consolidated and
 
significant legal entity
 
levels. We also
 
assess
the sensitivity of EVE and NII under stressed market conditions by
applying a suite
 
of parallel
 
and non-parallel interest
 
rate scenarios,
as well as specific economic scenarios.
The Group
 
Asset and
 
Liability Committee
 
(ALCO) and,
 
where
relevant,
 
ALCOs
 
at
 
a
 
legal
 
entity
 
level
 
perform
 
independent
oversight over the management of IRRBB,
 
which is also subject to
Group Internal Audit and model governance.
›
 
Refer to “Group Internal Audit” in the “Corporate
 
governance”
section of this report and to “Risk measurement”
 
in this section
for more information
Key modeling assumptions
The cash flows
 
from customer deposits
 
and lending products
 
used
in calculation
 
of EVE
 
sensitivity exclude
 
commercial margins
 
and
other spread
 
components, are
 
aggregated by
 
daily time
 
buckets
and are
 
discounted using
 
risk-free
 
rates. Our
 
external issuances
are
 
discounted
 
using
 
UBS’s
 
senior
 
debt
 
curve,
 
and
 
capital
instruments are modeled
 
to the
 
first call date.
 
NII sensitivity, which
includes commercial
 
margins, is
 
calculated over
 
a one-year
 
time
horizon, assuming constant balance sheet structure and volumes,
and
 
considers
 
the
 
flooring
 
effect
 
of
 
embedded
 
interest
 
rate
options.
The average
 
repricing maturity
 
of non-maturing
 
deposits and
loans is determined via
 
replication portfolio strategies designed
 
to
protect
 
product
 
margin.
 
Optimal
 
replicating
 
portfolios
 
are
determined
 
at
 
granular
 
currency-
 
and
 
product-specific
 
levels
 
by
simulating
 
and
 
applying
 
a
 
real-world
 
market
 
rate
 
model
 
to
historically calibrated client rate and volume models.
We
 
use
 
an
 
econometric
 
prepayment
 
model
 
to
 
forecast
prepayment
 
rates on
 
US mortgage
 
loans
 
in UBS
 
Bank USA
 
and
agency
 
mortgage-backed
 
securities
 
(MBSs)
 
held
 
in
 
various
liquidity
 
portfolios
 
of
 
UBS
 
Americas
 
Holding
 
LLC
 
consolidated.
These prepayment rates are used to forecast both mortgage loan
and MBS
 
balances under
 
various macroeconomic
 
scenarios. The
prepayment model is used for
 
a variety of purposes, including
 
risk
management and regulatory
 
stress testing. Swiss
 
mortgages and
fixed-term deposits generally do not carry similar
 
optionality, due
to prepayment and early redemption penalties.
Sensitivity Analysis For Each Type Of Market Risk
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of our business divisions and Group
Functions by general market risk type
1
For the year ended 31.12.21
USD million
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
1
7
5
1
2
Max.
35
13
11
9
5
Average
7
9
7
3
3
31.12.21
8
11
7
6
3
Total management VaR, Group
4
36
11
12
Average (per business division and risk type)
Global Wealth Management
1
3
1
2
0
1
2
0
0
Personal & Corporate Banking
0
0
0
0
0
0
0
0
0
Asset Management
0
0
0
0
0
0
0
0
0
Investment Bank
3
36
11
11
7
9
7
3
3
Group Functions
4
8
5
4
0
4
4
1
0
Diversification effect
2,3
(6)
(5)
0
(5)
(5)
(1)
0
For the year ended 31.12.20
USD million
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
3
6
5
2
2
Max.
29
11
11
7
6
Average
10
8
7
4
4
31.12.20
6
8
8
3
3
Total management VaR, Group
8
31
13
11
Average (per business division and risk type)
Global Wealth Management
0
2
1
1
0
1
1
0
0
Personal & Corporate Banking
0
0
0
0
0
0
0
0
0
Asset Management
0
0
0
0
0
0
0
0
0
Investment Bank
7
32
12
10
10
7
6
4
4
Group Functions
4
7
5
6
0
4
3
1
0
Diversification effect
2,3
(5)
(8)
0
(4)
(4)
(1)
0
1 Statistics at individual levels may not be
 
summed to deduce the corresponding aggregate
 
figures. The minima
 
and maxima for each level may well occur
 
on different days, and likewise,
 
the VaR for each
 
business
line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and
 
losses for that business line or risk type, may well be driven by different days in the
 
historical time series,
rendering invalid the simple summation of figures to arrive at the aggregate total.
 
2 Difference between the sum of the standalone VaR for the business divisions and Group Functions and the VaR for the Group as
a whole.
 
3 As the minima and maxima for different business divisions and Group Functions occur on different days, it is not meaningful
 
to calculate a portfolio diversification effect.
Audited
 
|
 
Interest
 
rate
 
risk
 
in
 
the
 
banking
 
book
 
is
 
subject
 
to
 
a
regulatory EVE
 
sensitivity threshold
 
of
15
% of tier 1
 
capital. The
exposure
 
is
 
calculated
 
as
 
the
 
theoretical
 
change
 
in
 
the
 
present
value
 
of
 
the
 
banking
 
book
 
under
 
the
 
most
 
adverse
 
of
 
the
 
six
FINMA interest rate scenarios.
As
 
of
 
31 December
 
2021,
 
the
 
interest
 
rate
 
sensitivity
 
of
 
our
banking book to a +1-basis-point parallel shift in yield curves was
negative
 
USD
29.9
 
million,
 
compared
 
with
 
negative
 
USD
27.2
million as of
 
31 December 2020. The
 
change in the
 
interest rate
sensitivity was driven
 
by the execution of
 
transactions in the first
quarter
 
of
 
2021
 
that were
 
aimed at
 
protecting our
 
net interest
income should interest
 
rates decrease. The
 
reported interest rate
sensitivity
 
excludes
 
the
 
AT1
 
capital
 
instruments,
 
as
 
per
 
FINMA
Pillar 3
 
disclosure
 
requirements,
 
with
 
a
 
sensitivity
 
of
 
USD
4.5
million per
 
basis point,
 
and our
 
equity, goodwill
 
and real
 
estate,
with a modeled sensitivity of USD
22.1
 
million per basis point, of
which
 
USD
15.6
 
million
 
and
 
USD
5.5
 
million
 
are
 
attributable to
the US dollar and the Swiss franc portfolios, respectively.
The
 
most
 
adverse
 
of
 
the
 
six
 
FINMA
 
interest
 
rate
 
scenarios
would
 
be
 
the
 
“Parallel
 
up”
 
scenario,
 
which
 
would
 
result
 
in
 
a
change
 
in
 
the
 
economic
 
value
 
of
 
equity
 
of
 
negative
 
USD
6.0
billion,
 
representing
 
a
 
pro
 
forma
 
reduction
 
of
10.0
%
 
of
 
tier 1
capital, which would
 
be well below
 
the regulatory outlier
 
test of
15
% of
 
tier 1 capital.
 
The immediate
 
effect of
 
the “Parallel
 
up”
scenario
 
on
 
tier 1
 
capital
 
as
 
of
 
31 December
 
2021
 
would
 
be
 
a
reduction of
1.8
%, or USD
1.1
 
billion, arising from the
 
part of our
banking book that is measured at fair value through profit or loss
and
 
from
Financial assets
 
measured
 
at
 
fair value
 
through
 
other
comprehensive
 
income
.
 
Over
 
time
 
this
 
scenario
 
would
 
have
 
a
positive effect on net interest income.
Interest rate risk – banking book
USD million
+1 bp
Parallel up
1
Parallel down
1
Steepener
2
Flattener
3
Short-term up
4
Short-term down
5
CHF
(5.1)
(724.1)
806.3
(254.3)
117.1
(158.7)
162.5
EUR
(1.1)
(196.6)
231.9
(69.0)
37.4
(24.1)
27.4
GBP
0.1
33.3
(32.8)
(31.1)
35.3
45.4
(43.7)
USD
(23.5)
(5,068.3)
4,124.2
(821.4)
(362.3)
(2,165.9)
2,315.6
Other
(0.4)
(85.8)
19.9
(3.7)
(34.5)
(59.6)
3.8
Total effect on economic value of equity as per Pillar 3 requirement as of
31.12.21
(29.9)
(6,041.4)
5,149.5
(1,179.6)
(207.0)
(2,362.9)
2,465.6
Additional tier 1 (AT1) capital instruments
4.5
853.4
(928.4)
(9.6)
197.1
531.5
(553.3)
Total including AT1 capital instruments as of 31.12.21
(25.4)
(5,188.0)
4,221.1
(1,189.2)
(10.0)
(1,831.4)
1,912.3
1 Rates across all tenors move by ±150 bps for
 
Swiss franc, ±200 bps for euro and US dollar and ±250 bps for
 
pound sterling.
 
2 Short-term rates decrease and long-term rates increase.
 
3 Short-term rates increase
and long-term rates decrease.
 
4 Short-term rates increase more than long-term rates.
 
5 Short-term rates decrease more than long-term rates.
Audited |
 
We make direct investments
 
in a variety
 
of entities and
 
buy
equity holdings in
 
both listed
 
and unlisted companies,
 
for a
 
variety
of purposes, including investments
 
such as exchange and
 
clearing
house
 
memberships
 
held
 
to
 
support our
 
business activities.
 
We
may also make investments in
 
funds that we manage in
 
order to
fund
 
or
 
seed
 
them
 
at
 
inception
 
or
 
to
 
demonstrate
 
that
 
our
interests
 
align
 
with
 
those
 
of
 
investors.
 
We
 
also
 
buy,
 
and
 
are
sometimes
 
required
 
by
 
agreement
 
to
 
buy,
 
securities
 
and
 
units
from funds that we have sold to clients.
The fair value of equity
 
investments tends to be influenced by
factors specific
 
to the
 
individual investments.
 
Equity investments
are generally
 
intended to
 
be held
 
for the
 
medium or
 
long term
and may be subject to lock-up
 
agreements. For these reasons, we
generally
 
do
 
not
 
control
 
these
 
exposures
 
by
 
using
 
market
 
risk
measures
 
applied
 
to
 
trading
 
activities.
 
However,
 
such
 
equity
investments are subject to a different range of controls, including
preapproval
 
of
 
new
 
investments
 
by
 
business
 
management
 
and
Risk
 
Control,
 
portfolio
 
and
 
concentration
 
limits,
 
and
 
regular
monitoring
 
and reporting
 
to
 
senior
 
management. They
 
are also
included in
 
our Group-wide
 
statistical and
 
stress testing
 
metrics,
which flow into our risk appetite framework.
As
 
of
 
31 December
 
2021,
 
we
 
held
 
equity
 
investments
 
and
investment fund units totaling USD
3.0
 
billion, of which USD
1.8
billion was
 
classified as
Financial assets
 
at fair
 
value not
 
held for
trading
 
and USD
1.2
 
billion as
Investments in associates
.
Audited |
 
Debt investments classified as
Financial assets measured
 
at
fair value
 
through OCI
 
as of
 
31 December 2021
 
were measured
at fair
 
value with
 
changes in
 
fair value
 
recorded through
Equity
,
and can broadly
 
be categorized
 
as money market
 
instruments and
debt securities primarily
 
held for statutory,
 
regulatory or liquidity
reasons.
The
 
risk
 
control
 
framework
 
applied
 
to
 
debt
 
instruments
classified as
Financial assets
 
measured at
 
fair value
 
through OCI
 
depends
 
on
 
the nature
 
of
 
the instruments
 
and the
 
purpose
 
for
which we
 
hold them.
 
Our exposures
 
may be
 
included in
 
market
risk
 
limits
 
or
 
be
 
subject
 
to
 
specific
 
monitoring
 
and
 
interest
 
rate
sensitivity
 
analysis.
 
They
 
are
 
also
 
included
 
in
 
our
 
Group-wide
statistical
 
and
 
stress
 
testing
 
metrics,
 
which
 
flow
 
into
 
our
 
risk
appetite framework.
 
Debt instruments classified as
Financial assets measured at fair
value
 
through
 
OCI
 
had
 
a
 
fair
 
value
 
of
 
USD
8.8
 
billion
 
as
 
of
31
 
December
 
2021
 
compared
 
with
USD
 
8.3
 
billion
 
as
 
of
31 December 2020.