Capital management

UBS implemented Basel II, the new international capital adequacy standard formulated by the Basel Committee on Banking Supervision, on 1 January 2008. Therefore, the analysis in this section compares Basel II figures from 31 March 2008 with Basel I figures from previous periods. See the sidebar "Capital measurement under Basel II" for further details on UBS's implementation of Basel II.

Capital requirements

Under the newly introduced Basel II framework, RWA were CHF 333.3 billion on 31 March 2008, compared with CHF 372.3 billion on 31 December 2007 under Basel I. Figures by component are as follows:

- RWA for credit risk declined significantly under Basel II, dropping to CHF 272 billion on 31 March 2008 from CHF 321 billion on 31 December 2007. This substantial saving resulted from the more favorable treatment of Global Wealth Management & Business Banking mortgage, customer loan and Lombard lending portfolios under Basel II. This favorable impact was partially offset by higher RWA for over-the-counter (OTC) derivatives and repo-style transactions (i.e. repurchase / reverse repurchase and securities lending and borrowing transactions). In addition, certain portfolios related to the US residential mortgage market were transferred from the trading book into the banking book for capital adequacy purposes, due to the continued illiquidity in the markets for these products. For further information, please refer to page 27 in the "Market risk" section of this report.

- The decline in RWA for market risk, from CHF 42 billion on 31 December 2007 to CHF 17 billion on 31 March 2008, was mainly due to the transfer of certain portfolios related to the US residential mortgage market from the trading book to the banking book. For further information, please refer to page 27 in the "Market risk" section of this report.

- Basel II introduces a capital charge for operational risk and this added CHF 37 billion in RWA on 31 March 2008.

- RWA for non-counterparty related assets declined to CHF 7 billion at 31 March 2008 from CHF 9 billion at year-end 2007, mainly because intangible assets are no longer risk-weighted under Basel II, but are instead deducted from capital.