Edgar Filing: CREDIT SUISSE GROUP AG

6-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

March 20, 2015

Commission File Number 001-15244

CREDIT SUISSE GROUP AG

(Translation of registrant’s name into English)

Paradeplatz 8, CH 8001 Zurich, Switzerland
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or
Form 40-F.

Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CREDIT SUISSE GROUP AG

(Registrant)

Date: March 20, 2015

By:

/s/ Joachim Oechslin

Joachim Oechslin

Chief Risk Officer

By:

/s/ David R. Mathers

David R. Mathers

Chief Financial Officer

In various tables, use of “–” indicates not meaningful or not applicable.

Basel III

Pillar 3 – disclosures

2014

Introduction
General
Regulatory development
Location of disclosure
Scope of application
Principles of consolidation
Restrictions on transfer of funds or regulatory capital
Capital deficiencies
Risk management oversight
Capital
Regulatory capital framework
Capital structure under Basel III
Swiss Requirements
Description of regulatory approaches
BIS capital metrics
Swiss capital metrics
Credit risk
General
Credit risk by asset class
Securitization risk in the banking book
Equity type securities in the banking book
Central counterparties risk
Market risk
General
Securitization risk in the trading book
Valuation process
Interest rate risk in the banking book
Overview
Major sources of interest rate risk in the banking book
Governance of models and limits
Risk measurement
Monitoring and review
Risk profile
Reconciliation requirements
Balance sheet
Composition of BIS regulatory capital
List of abbreviations

Introduction

General

The purpose of this Pillar 3 report is to provide updated information as of December 31, 2014 on our implementation of the Basel capital framework and risk assessment processes in accordance with the Pillar 3 requirements. This document should be read in conjunction with the Credit Suisse Annual Report 2014, which includes important information on regulatory capital and risk management (specific references have been made herein to this document).

In addition to Pillar 3 disclosures we disclose the way we manage our risks for internal management purposes in the Annual Report.

> Refer to “Risk management” (pages 126 to 160) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2014 for further information regarding the way we manage risk including economic capital as a Group-wide risk management tool.

Certain reclassifications may be made to prior periods to conform to the current period’s presentation.

The Pillar 3 report is produced and published semi-annually, in accordance with Swiss Financial Market Supervisory Authority FINMA (FINMA) requirements.

This report was verified and approved internally in line with our Pillar 3 disclosure policy. The Pillar 3 report has not been audited by the Group’s external auditors. However, it also includes information that is contained within the audited consolidated financial statements as reported in the Credit Suisse Annual Report 2014.

Regulatory development

On January 28, 2015, the Basel Committee on Banking Supervision (BCBS) issued the final standard for the revised Pillar 3 disclosure requirements. The revised disclosure requirements will enable market participants to compare bank’s disclosure of risk-weighted assets. The revisions focus on improving the transparency of the internal model-based approaches that banks use to calculate minimum regulatory capital requirements. The revised requirements will be effective for the year-end 2016 financial reporting.

Location of disclosure

This report provides the Basel III Pillar 3 disclosures to the extent that these required Pillar 3 disclosures are not included in the Credit Suisse Annual Report 2014.

The following table provides an overview of the location of the required Pillar 3 disclosures.

Location of disclosure
Pillar 3 requirements	Pillar 3 Report 2014	Annual Report 2014
Scope of application
Top corporate entity	"Scope of application" (p. 4)
Differences in basis of consolidation	Description of differences: "Principles of consolidation" (p. 4)	List of significant subsidiaries and associated entities: "Note 39 - Significant subsidiaries and equity method investments (p. 360 - 362) Changes in scope of consolidation: "Note 3 - Business developments" (p. 250)
Restrictions on transfer of funds or regulatory capital	Overview: "Restrictions on transfer of funds or regulatory capital" (p. 4)	Detailed information: "Liquidity and funding management" (p. 100 - 107)
Capital deficiencies	"Capital deficiencies" (p. 4)
Capital structure
	"Capital structure under Basel III" (p. 5) "Swiss requirements" (p. 5 - 6)
Capital adequacy
Group/Bank	"Description of regulatory approaches" (p. 6 - 12) "BIS capital metrics" (p. 13 - 14) "Swiss capital metrics" (p. 15 - 16)
Significant subsidiaries	Refer to "Regulatory disclosures" under https://www.credit-suisse.com/investors/en/index.jsp
Risk management objectives and policies
General description		"Risk management oversight" (p. 127 - 130) "Risk appetite framework" (p. 130 - 132) "Risk coverage and management" (p. 133 - 136)

Location of disclosure (continued)
Pillar 3 requirements	Pillar 3 Report 2014	Annual Report 2014
Credit risk
Credit risk management overview		"Credit risk" (p. 139 - 141)
Credit risk by asset classes
Gross credit exposure, risk-weighted assets and capital requirement	"General" (p. 17 - 20)
Portfolios subject to PD/LGD approach	"Portfolios subject to PD/LGD approach" (p. 20 - 29)
Portfolios subject to standardized and supervisory risk weights approaches	"Portfolios subject to standardized and supervisory risk weights approaches" (p. 29)
Credit risk mitigation used for A-IRB and standardized approaches	"Credit risk mitigation used for A-IRB and standardized approaches" (p. 30 - 31)	Netting: "Derivative instruments" (p. 156 - 158) "Note 1 - Summary of significant accounting policies" (p. 241 - 242) "Note 26 - Offsetting of financial assets and financial liabilities" (p. 277 - 280)
Counterparty credit risk	"Counterparty credit risk" (p. 31 - 34)	Effect of a credit downgrade: "Credit ratings" (p. 107) Impaired loans by industry distribution/industry distribution of charges and write-offs: "Note 18 - Loans, allowance for loan losses and credit quality" (p. 266 to 269)
Securitization risk in the banking book	"Securitization risk in the banking book" (p. 35 to 39)
Equity type securities in the banking book	"Equity type securities in the banking book" (p. 39 to 40)
Market risk
Market risk management overview	Quantitative disclosures: "General" (p. 41)	Qualitative disclosures: "Market risk" (p. 136 to 139)
Securitization risk in the trading book	"Securitization risk in the trading book" (p. 42 - 47)
Interest rate risk in the banking book
	Qualitative disclosures: "Interest rate risk in the banking book" (p. 48 to 49)	Quantitative disclosures: "Banking portfolios" (p. 151 to 152)
Operational risk
	Overview: "Operational risk" (p. 12)	Detailed information: "Operational risk" (p. 141 - 144)
Composition of capital
Balance sheet under the regulatory scope of consolidation	"Balance sheet" (p. 50 to 51)
Composition of capital	"Composition of capital" (p. 52 to 54)
Capital instruments
Main features template and full terms and conditions	Refer to "Regulatory disclosures" under https://www.credit-suisse.com/investors/en/index.jsp
Remuneration
		"Compensation" (p. 196 to 228)
G-SIBs indicator
	Refer to "Regulatory disclosures" under https://www.credit-suisse.com/investors/en/index.jsp

Scope of application

The highest consolidated entity in the Group to which the Basel III framework applies is Credit Suisse Group.

> Refer to “Regulation and supervision” (pages 26 to 38) in I – Information on the company and to “Capital management” (pages 108 to 125) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2014 for further information on regulation.

Principles of consolidation

For financial reporting purposes, our consolidation principles comply with accounting principles generally accepted in the US (US GAAP). For capital adequacy reporting purposes, however, entities that are not active in banking and finance are not subject to consolidation (i.e. insurance, real estate and commercial companies). Also, FINMA does not require to consolidate private equity and other fund type vehicles for capital adequacy reporting. Further differences in consolidation principles between US GAAP and capital adequacy reporting relate to special purpose entities (SPEs) that are consolidated under a control-based approach for US GAAP but are assessed under a risk-based approach for capital adequacy reporting. The investments into such entities, which are not material to the Group, are treated in accordance with the regulatory rules and are either subject to a risk-weighted capital requirement or a deduction from regulatory capital.

All significant equity method investments represent investments in the capital of banking, financial and insurance (BFI) entities and are subject to a threshold calculation in accordance with the Basel framework.

Restrictions on transfer of funds or regulatory capital

We do not believe that legal or regulatory restrictions constitute a material limitation on the ability of our subsidiaries to pay dividends or our ability to transfer funds or regulatory capital within the Group.

Capital deficiencies

The Group’s subsidiaries which are not included in the regulatory consolidation did not report any capital deficiencies in 2014.

Risk management oversight

Fundamental to our business is the prudent taking of risk in line with our strategic priorities. The primary objectives of risk management are to protect our financial strength and reputation, while ensuring that capital is well deployed to support business activities and grow shareholder value. Our risk management framework is based on transparency, management accountability and independent oversight. Risk measurement models are reviewed by the Model Risk Management team, an independent validation function, and regularly presented to and approved by the relevant oversight committee.

> Refer to “Risk management oversight” (pages 127 to 130), “Risk appetite framework” (pages 130 to 132) and “Risk coverage and management” (pages 133 to 136) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2014 for information on risk management oversight including risk culture, risk governance, risk organization, risk types and risk appetite and risk limits.

The Group is exposed to several key banking risks such as:

– Credit risk (refer to section “Credit risk” on pages 17 to 40);

– Market risk (refer to section “Market risk” on pages 41 to 47);

– Interest rate risk in the banking book (refer to section “Interest rate risk in the banking book” on pages 48 to 49); and

– Operational risk (refer to section “Capital” on page 12).

Capital

Regulatory capital framework

Effective January 1, 2013, the Basel III framework was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder (Swiss Requirements). Our related disclosures are in accordance with our current interpretation of such requirements, including relevant assumptions. Changes in the interpretation of these requirements in Switzerland or in any of our assumptions or estimates could result in different numbers from those shown in this report. Also, our capital metrics fluctuate during any reporting period in the ordinary course of business.

> Refer to “Capital management” (pages 108 to 125) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2014 for further information.

Capital structure under Basel III

The BCBS, the standard setting committee within the Bank for International Settlements (BIS), issued the Basel III framework, with higher minimum capital requirements and conservation and countercyclical buffers, revised risk-based capital measures, a leverage ratio and liquidity standards. The framework was designed to strengthen the resilience of the banking sector and requires banks to hold more capital, mainly in the form of common equity. The new capital standards are being phased in from 2013 through 2018 and will be fully effective January 1, 2019 for those countries that have adopted Basel III.

> Refer to the table “Basel III phase-in requirements for Credit Suisse” (page 110) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Regulatory capital framework in the Credit Suisse Annual Report 2014 for capital requirements and applicable effective dates during the phase-in period.

Under Basel III, the minimum common equity tier 1 (CET1) requirement is 4.5% of risk-weighted assets. In addition, a 2.5% CET1 capital conservation buffer is required to absorb losses in periods of financial and economic stress.

A progressive buffer between 1% and 2.5% (with a possible additional 1% surcharge) of CET1, depending on a bank’s systemic importance, is an additional capital requirement for global systemically important banks (G-SIB). The Financial Stability Board has identified us as a G-SIB and requires us to maintain a 1.5% progressive buffer.

In addition to the CET1 requirements, there is also a requirement for 1.5% additional tier 1 capital and 2% tier 2 capital. These requirements may also be met with CET1 capital. To qualify as additional tier 1 under Basel III, capital instruments must provide for principal loss absorption through a conversion into common equity or a write-down of principal feature. The trigger for such conversion or write-down must include a CET1 ratio of at least 5.125%.

Basel III further provides for a countercyclical buffer that could require banks to hold up to 2.5% of CET1 or other capital that would be available to fully absorb losses. This requirement is expected to be imposed by national regulators where credit growth is deemed to be excessive and leading to the build-up of system-wide risk.

Capital instruments that do not meet the strict criteria for inclusion in CET1 are excluded. Capital instruments that would no longer qualify as tier 1 or tier 2 capital will be phased out.

Swiss Requirements

The legislation implementing the Basel III framework in Switzerland in respect of capital requirements for systemically relevant banks goes beyond Basel III’s minimum standards, including requiring us, as a systemically relevant bank, to have the following minimum, buffer and progressive components.

> Refer to the chart “Swiss capital and leverage ratio phase-in requirements for Credit Suisse” (page 111) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Regulatory capital framework in the Credit Suisse Annual Report 2014 for Swiss capital requirements and applicable effective dates during the phase-in period.

The minimum requirement of CET1 capital is 4.5% of risk-weighted assets.

The buffer requirement is 8.5% and can be met with additional CET1 capital of 5.5% of risk-weighted assets and a maximum of 3% of high-trigger capital instruments. High-trigger capital instruments must convert into common equity or be written off if the CET1 ratio falls below 7%.

The progressive component requirement is dependent on our size (leverage ratio exposure) and the market share of our domestic systemically relevant business. Effective in 2014, FINMA set our progressive component requirement at 3.66% for 2019. In July 2014, FINMA notified us that, effective in 2015, the progressive component requirement for 2019 will be increased from 3.66% to 4.05% due to the latest assessment of our relevant market share. The progressive component requirement may be met with CET1 capital or low-trigger capital instruments. In order to qualify, low-trigger capital instruments must convert into common equity or be written off if the CET1 ratio falls below a specified percentage, the lowest of which may be 5%. In addition, until the end of 2017, the progressive component requirement may also be met with high-trigger capital instruments. Both high and low-trigger capital instruments must comply with the Basel III minimum requirements for tier 2 capital (including subordination, point-of-non-viability loss absorption and minimum maturity).

Similar to Basel III, the Swiss Requirements include a supplemental countercyclical buffer of up to 2.5% of risk-weighted assets that can be activated during periods of excess credit growth. Effective September 2013, the countercyclical capital buffer was activated and initially required banks to hold CET1 capital in the amount of 1% of their risk-weighted assets pertaining to mortgages that finance residential property in Switzerland. In January 2014, upon the request of the Swiss National Bank, the

Swiss Federal Council further increased the countercyclical buffer from 1% to 2%, effective June 30, 2014. As of the end of 2014, our countercyclical buffer, which applies pursuant to both BIS and FINMA requirements, was CHF 297 million, which is equivalent to an additional requirement of 0.1% of CET1 capital.

In 2013, FINMA introduced increased capital charges for mortgages that finance owner occupied residential property in Switzerland (mortgage multiplier) to be phased in through January 1, 2019. The mortgage multiplier applies for purposes of both BIS and FINMA requirements.

In December 2013, FINMA issued a decree (FINMA Decree)specifying capital adequacy requirements for the Bank, on a stand-alone basis (Bank parent company), and the Bank and the Group, each on a consolidated basis, as systemically relevant institutions.

Beginning in 1Q14, we adjusted the presentation of our Swiss capital metrics and terminology and we now refer to Swiss Core Capital as Swiss CET1 capital and Swiss Total Capital as Swiss total eligible capital. Swiss Total Capital previously reflected the tier 1 participation securities, which were fully redeemed in 1Q14. Swiss CET1 capital consists of BIS CET1 capital and certain other Swiss adjustments. Swiss total eligible capital consists of Swiss CET1 capital, high-trigger capital instruments, low-trigger capital instruments, additional tier 1 instruments and tier 2 instruments subject to phase-out and deductions from additional tier 1 and tier 2 capital.

> Refer to “Capital management” (pages 108 to 125) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2014 for information on our capital structure, eligible capital and shareholders’ equity, capital adequacy and leverage ratio requirements under Basel III and Swiss Requirements.

Description of regulatory approaches

The Basel framework provides a range of options for determining the capital requirements in order to allow banks and supervisors the ability to select approaches that are most appropriate. In general, Credit Suisse has adopted the most advanced approaches, which align with the way risk is internally managed. The Basel framework focuses on credit risk, market risk, operational risk and interest rate risk in the banking book. The regulatory approaches for each of these risk exposures and the related disclosures under Pillar 3 are set forth below.

Credit risk

Credit risk by asset class

The Basel framework permits banks a choice between two broad methodologies in calculating their capital requirements for credit risk by asset class, the internal ratings-based (IRB) approach or the standardized approach. Off-balance-sheet items are converted into credit exposure equivalents through the use of credit conversion factors (CCF).

The majority of our credit risk by asset class is with institutional counterparties (sovereigns, other institutions, banks and corporates) and arises from lending and trading activity in the Investment Banking and Private Banking & Wealth Management divisions. The remaining credit risk by asset class is with retail counterparties and mostly arises in the Private Banking & Wealth Management division from residential mortgage loans and other secured lending, including loans collateralized by securities.

> Refer to “Credit risk by asset class” in section “Credit risk” on pages 17 to 34 for further information.

Advanced-internal ratings-based approach

Under the IRB approach, risk weights are determined by using internal risk parameters and applying an asset value correlation multiplier uplift where exposures are to financial institutions meeting regulatory defined criteria. We have received approval from FINMA to use, and have fully implemented, the advanced-internal ratings-based (A-IRB) approach whereby we provide our own estimates for probability of default (PD), loss given default (LGD) and exposure at default (EAD).

PD parameters capture the risk of a counterparty defaulting over a one-year time horizon. PD estimates are mainly derived from models tailored to the specific business of the respective obligor. The models are calibrated to the long run average of annual internal or external default rates where applicable. For portfolios with a small number of empirical defaults (less than 20), low default portfolio techniques are used.

LGD parameters consider seniority, collateral, counterparty industry and in certain cases fair value markdowns. LGD estimates are based on an empirical analysis of historical loss rates and are calibrated to reflect time and cost of recovery as well as economic downturn conditions. For much of the Private Banking & Wealth Management loan portfolio, the LGD is primarily dependent upon the type and amount of collateral pledged. The credit approval and collateral monitoring process are based on loan-to-value limits. For mortgages (residential or commercial), recovery rates are differentiated by type of property.

EAD is either derived from balance sheet values or by using models. EAD for a non-defaulted facility is an estimate of the expected exposure upon default of the obligor. Estimates are derived based on a CCF approach using default-weighted averages of historical realized conversion factors on defaulted loans by facility type. Estimates are calibrated to capture negative operating environment effects.

We have received approval from FINMA to use the internal model method for measuring counterparty risk for the majority of our derivative and secured financing exposures.

Risk weights are calculated using either the PD/LGD approach or the supervisory risk weights (SRW) approach for certain types of specialized lending.

Standardized approach

Under the standardized approach, risk weights are determined either according to credit ratings provided by recognized external credit assessment institutions or, for unrated exposures, by using the applicable regulatory risk weights. Less than 10% of our credit risk by asset class is determined using this approach.

Comparing standardized approach and internal ratings-based approach for calculating risk-weighted assets for credit risk

We received regulatory approval to use the A-IRB approach for calculating our Pillar 1 capital charge for credit risk. The A-IRB approach is used for the vast majority of credit risk exposures, with the standardized approach used for only a relatively small proportion of credit exposures.

The BCBS is currently consulting on policy measures that will change many of the current standardized approaches. This is aimed at improving the risk sensitivity of standardized approaches so that they align more closely with internal model approaches. Consequently, FINMA has requested that we discloses a qualitative comparison of credit risk risk-weighted assets under the A-IRB approach and the current standardized approach.

Key methodological differences

The differences between risk-weighted assets calculated under the A-IRB approach and the standardized approach are driven by the approaches used for measuring the EAD and the risk weights applied to the counterparties. Under the A-IRB approach, the maturity of a transaction, internal estimates of the PD and downturn LGD are used as inputs to a Basel risk-weight formula for calculating risk-weighted assets. Under the standardized approach, risk weights are driven by external rating agencies, and are less granular.

The following table summarizes the key differences between the standardized approach and the A-IRB approach.

Key differences between the standardized approach and the A-IRB approach
	Standardized approach	A-IRB approach	Key impact
EAD for derivatives	Current Exposure Method is simplistic (market value and add-on): BCBS to replace it in 2017	Internal Measurement Method (IMM) allows monte-carlo simulation to estimate exposure	For large diversified derivatives portfolios, standardized approach EAD is higher than IMM modeled EAD
	Differentiates add-ons by five exposure types and three maturity buckets only	Ability to net and offset risk factors within the portfolio (i.e. benefit from diversification)	Impact applies across all asset classes
	Limited ability to net	Application of a 1.2 - 1.4 multiplier on exposure estimate
		Variability in holding period applied to collateralized transactions, reflecting liquidity risks
Risk weighting	Reliance on rating agencies: where no rating is available a 100% risk weight is applied (i.e. for most small and medium size enterprises and funds)	Reliance on internal ratings where each counterparty/transaction receives a rating	A-IRB approach produces lower risk-weighted assets for high quality short term transactions
	Crude risk weight differentiation with 4 key weights: 20%, 50%, 100%, 150% (and 0% for AAA sovereigns, 35% for mortgages, 75% for retail)	Granular risk sensitive risk weights differentiation via individual PDs and LGDs	Standardized approach produces lower risk-weighted assets for non-investment grade and long-term transactions
	No differentiation for transaction features	PD is floored to prevent 0% risk weight on AAA sovereigns	Impact relevant across all asset classes
		LGD captures transaction quality features incl. collateralization
		Application of a 1.06 multiplier
Risk mitigation	Limited recognition of risk mitigation	Risk mitigation recognized via risk sensitive LGD or EAD	Standardized approach risk-weighted assets higher than A-IRB approach risk-weighted assets for most collaterals
	Restricted list of eligible collateral	Wider variety of collateral types eligible	Impact particularly relevant for lombard lending and structured finance transactions
	Conservative and crude regulatory haircuts
Maturity in risk weight	No differentiation for maturity of transactions, except for interbank exposures in a coarse manner	No internal modelling of maturity	Standardized approach risk-weighted assets higher than A-IRB approach risk-weighted assets for most collaterals
		Regulatory risk-weighted assets function considers maturity: the longer the maturity the higher the risk weight (see chart "Risk weight by maturity")	A-IRB approach produces lower risk-weighted assets for high quality short-term transactions

The following chart compares risk weights under the standardized approach and the A-IRB approach for counterparties across the rating spectrum. Under the standardized approach, risk weights are very crude when compared to those under the A-IRB approach. The chart also shows that the A-IRB approach produces lower risk weights than the standardized approach for high credit quality assets, with this trend reversed for low credit quality assets.

The following chart provides a comparison of the risk weights under the standardized approach and the A-IRB approach for transactions with maturities between zero and five years for counterparties with ratings ranging from A to BB.

Risk weights under the standardized approach are not sensitive to a transaction’s maturity whereas risk weights under the A-IRB approach are sensitive to the maturity. Under the A-IRB approach, low risk counterparties, such as investment grade and senior secured, receive significantly lower risk weights than under the standardized approach across the entire range of maturities. Under the A-IRB approach, high risk counterparties, such as non-investment grade and senior unsecured, receive lower risk weights only for maturities less than two years compared to the standardized approach. Note that under the A-IRB approach, the maturity sensitivity is not internally modelled and is exclusively driven by the BCBS specification of the risk weighting function.

The following table further illustrates the risk differentiation achieved under the A-IRB approach. Low risk corporates receive lower risk weights under the A-IRB approach. High risk corporates receive higher risk weights under the A-IRB approach. The A-IRB approach risk weights have greater variability depending on maturity.

Risk differentiation of the A-IRB approach
Branch	Cash flow to net turnover (%)	Liquidity ratio (%)	Equity ratio (%)	Collateral value based LTV (%)	A-IRB approach risk weight range (%)	Stan- dardized approach risk weight (%)
Low risk corporate	12	472	77	52	5 - 10	100
High risk corporate	(5)	100	29	no pledged assets	120 -130	100

Actual Credit Suisse risk-weighted assets levels by regulatory asset class

Sovereign asset class: For sovereign exposures, the risk-weighted assets under the standardized approach are lower than the risk-weighted assets under the A-IRB approach. This is driven by the composition of our sovereign portfolio which is focused on AAA to AA- counterparties. These counterparties receive a risk weights of zero percent under the standardized approach and non-zero risk weights under the A-IRB approach for example when using internal PDs and LGDs.

Corporate and bank asset class: For corporate and bank exposures, the risk-weighted assets under the standardized approach are higher than the risk-weighted assets under the A-IRB approach. This is driven by the more restrictive recognition of collateral agreements allowed under the standardized approach, as well as the treatment applied to derivatives which leads to higher EAD under the standardized approach than under the A-IRB approach. The absence of external ratings for a number of corporate counterparties also contributes to the difference between risk-weighted assets as these counterparties attract risk weights of 100% under the standardized approach as opposed to lower and more risk sensitive risk weights under the A-IRB approach.

For exposures to other institutions, e.g. public sector entities, the risk-weighted assets under the standardized approach are higher than those under the risk-weighted assets under the A-IRB approach. This is driven by the absence of external ratings for a number of counterparties which receive risk weights of 100% under the standardized approach. These risk weights are higher than the more risk sensitive weights applied under the A-IRB approach.

Retail asset class: For retail residential mortgage exposures, the risk-weighted assets under the standardized approach are higher than those under the A-IRB approach This is because the majority of exposures attract risk weights of 35% under the standardized approach as opposed to lower risk weights under the A-IRB approach. For lombard lending, the risk-weighted assets under the standardized approach are lower than the risk-weighted assets under the A-IRB approach. This is because for most transactions the risk weights under the A-IRB approach are driven by internal collateral haircuts which are higher than the haircuts under the standardized approach.

Conclusion

Overall, risk-weighted assets of Credit Suisse under the standardized approach are higher than the risk-weighted assets under the A-IRB approach. However, this simple comparison of risk-weighted assets under the standardized approach and A-IRB approach, without taking into account the underlying detailed portfolio composition, maturity profile and applied risk mitigation, can be misleading when comparing capitalization across banks.

We believe benchmark analysis performed by regulators and industry associations are more useful exercises in assessing the degree of conservativeness of internal models. In the industry associations’ 2013 benchmark analysis, our calibration of internal PD and LGD models is close to the industry mean.

We believe that risk-weighted assets under the A-IRB approach are more reflective of the economic risk because the risk-weighted assets are founded in empirical evidence, regularly backtested, and provide greater risk differentiation. In addition, the A-IRB approach provides a strong link between capital requirements and business drivers. This promotes a proactive risk culture at the origination of a transaction and strong capital consciousness within the organization.

Securitization risk in the banking book

For securitizations, the regulatory capital requirements are calculated using IRB approaches (the RBA and the SFA) and the standardized approach in accordance with the prescribed hierarchy of approaches in the Basel regulations. External ratings used in regulatory capital calculations for securitization risk exposures in the banking book are obtained from Fitch, Moody’s, Standard & Poor’s or Dominion Bond Rating Service.

> Refer to “Securitization risk in the banking book” in section “Credit risk” on pages 35 to 39 for further information on the IRB approaches and the standardized approach.

Equity type securities in the banking book

For equity type securities in the banking book except for significant investments in BFI entities, risk weights are determined using the IRB Simple approach based on the equity sub-asset type (listed equity and all other equity positions). Significant investments in BFI entities (i.e. investments in the capital of BFI entities that are outside the scope of regulatory consolidation, where the Group owns more than 10% of the issued common share capital of the entity) are subject to a threshold treatment as outlined below in the section “Exposures below 15% threshold”. Where equity type securities represent non-significant investments in BFI entities (i.e., investments in the capital of BFI entities that are outside the scope of regulatory consolidation, where the Group does not own more than 10% of the issued common share capital of the entity), a threshold approach is applied that compares the total amount of non-significant investments in BFI entities (considering both trading and banking book positions) to a 10% regulatory defined eligible capital amount. The amount above the threshold is phased-in as a capital deduction and the amount below the threshold continues to be risk-weighted according to the relevant trading book and banking book approaches.

> Refer to “Equity type securities in the banking book” in section “Credit risk” on pages 39 to 40 for further information.

Credit valuation adjustment risk

Basel III introduced a new regulatory capital charge, Credit Valuation Adjustment (CVA), designed to capture the risk associated with potential mark-to-market losses associated with the deterioration in the creditworthiness of a counterparty.

Under Basel III, banks are required to calculate capital charges for CVA under either the Standardized CVA approach or the Advanced CVA approach (ACVA). The CVA rules stipulate that where banks have permission to use market risk Value-at-Risk (VaR) and counterparty risk Internal Models Method (IMM), they are to use the ACVA unless their regulator decides otherwise. FINMA has confirmed that the ACVA should be used for both IMM and non-IMM exposures.

The regulatory CVA capital charge applies to all counterparty exposures arising from over-the-counter (OTC) derivatives, excluding those with central counterparties (CCP). Exposures arising from Securities Financing Transactions (SFT) are not required to be included in the CVA charge unless they could give rise to a material loss. FINMA has confirmed that Credit Suisse can exclude these exposures from the regulatory capital charge.

Central counterparties risk

The Basel III framework provides specific requirements for exposures the Group has to CCP arising from OTC derivatives, exchange-traded derivative transactions and SFT. Exposures to CCPs which are considered to be qualifying CCPs by the regulator will receive a preferential capital treatment compared to exposures to non-qualifying CCPs.

The Group can incur exposures to CCPs as either a clearing member (house or client trades), or as a client of another clearing member. Where the Group acts as a clearing member of a CCP on behalf of its client (client trades), it incurs an exposure to its client as well as an exposure to the CCP. Since the exposure to the client is to be treated as a bilateral trade, the risk-weighted assets from these exposures are represented under “credit risk by asset class”. Where the Group acts as a client of another clearing member the risk-weighted assets from these exposures are also represented under “credit risk by asset class”.

The exposures to CCP (represented as “Central counterparties (CCP) risks”) consist of trade exposure, default fund exposure and contingent exposure based on trade replacement due to a clearing member default. While the trades exposure includes the current and potential future exposure of the clearing member (or a client) to a CCP arising from the underlying transaction and the initial margin posted to the CCP, the default fund exposure is arising from default fund contributions to the CCP.

Settlement risk

Regulatory fixed risk weights are applied to settlement exposures. Settlement exposures arise from unsettled or failed transactions where cash or securities are delivered without a corresponding receipt.

Exposures below 15% threshold

Significant investments in BFI entities, mortgage servicing rights and deferred tax assets that arise from temporary differences are subject to a threshold approach, whereby individual amounts are compared to a 10% threshold of regulatory defined eligible capital. In addition amounts below the individual 10% thresholds are aggregated and compared to a 15% threshold of regulatory defined eligible capital. The amount that is above the 10% threshold is phased-in as a CET1 deduction. The amount above the 15% threshold is phased-in as a CET1 deduction and the amount below is risk weighted at 250%.

Other items

Other items include risk-weighted assets related to immaterial portfolios for which we have received approval from FINMA to apply a simplified Institute Specific Direct Risk Weight as well as risk-weighted assets related to items that were risk-weighted under Basel II.5 and are phased in as capital deductions under Basel III.

Market risk

We use the advanced approach for calculating the capital requirements for market risk for the majority of our exposures. The following advanced approaches are used: the internal models approach (IMA) and the standardized measurement method (SMM).

We use the standardized approach to determine our market risk for a small population of positions which represent an immaterial proportion of our overall market risk exposure.

> Refer to section “Market risk” on pages 40 to 47 for further information on market risk.

Internal models approach

The market risk IMA framework includes regulatory Value-at-Risk (VaR), stressed VaR, risks not in VaR (RNIV) and Incremental Risk Charge (IRC). In 2014 Comprehensive Risk Measure was discontinued due to the small size of the correlation trading portfolio. We now use the standard rules for this portfolio.

Regulatory VaR, stressed VaR and risks not in VaR

We have received approval from FINMA, as well as from certain other regulators of our subsidiaries, to use our VaR model to calculate trading book market risk capital requirements under the IMA. We apply the IMA to the majority of the positions in our trading book. We continue to receive regulatory approval for ongoing enhancements to the VaR methodology, and the VaR model is subject to regular reviews by regulators. Stressed VaR replicates a VaR calculation on the Group’s current portfolio taking into account a one-year observation period relating to significant financial stress and helps to reduce the pro-cyclicality of the minimum capital requirements for market risk. The VaR model does not cover all identified market risk types and as such we have also adopted a RNIV category which was approved by FINMA in 2012.

Incremental Risk Charge

The IRC capitalizes issuer default and migration risk in the trading book, such as bonds or credit default swaps (CDS), but excludes securitizations and correlation trading. We have received approval from FINMA, as well as from certain other regulators of our subsidiaries, to use our IRC model. We continue to receive regulatory approval for ongoing enhancements to the IRC methodology, and the IRC model is subject to regular reviews by regulators.

The IRC model assesses risk at 99.9% confidence level over a one year time horizon assuming that positions are sold and replaced one or more times, depending on their liquidity which is modeled by the liquidity horizon. The portfolio loss distribution is estimated using an internally developed credit portfolio model designed to the regulatory requirements.

The liquidity horizon represents time required to sell the positions or hedge all material risk covered by the IRC model in a stressed market. Liquidity horizons are modelled according to the requirements imposed by Basel III guidelines.

The IRC model and liquidity horizon methodology have been validated by the Model Risk Management team in accordance with the firms validation umbrella policy and Risk Model Validation Sub-Policy for IRC.

Standardized measurement method

We use the SMM which is based on the ratings-based approach (RBA) and the supervisory formula approach (SFA) for securitization purposes (see also Securitization risk in the banking book) and other supervisory approaches for trading book securitization positions covering the approach for nth-to-default products and portfolios covered by the weighted average risk weight approach.

> Refer to “Securitization risk in the trading book” in section “Market risk” on pages 42 to 47 for further information on the standardized measurement method and other supervisory approaches.

Operational risk

We have used an internal model to calculate the regulatory capital requirement for operational risk under the Advanced Measurement Approach (AMA) since 2008. In 2014, we introduced an enhanced internal model that incorporated recent developments regarding operational risk measurement methodology and associated regulatory guidance. FINMA approved the revised model for calculating the regulatory capital requirement for operational risk with effect from January 1, 2014. We view the revised model as a significant enhancement to our capability to measure and understand the operational risk profile of the Group that is also more conservative compared with the previous approach.

The model is based on a loss distribution approach that uses historical data on internal and relevant external losses of peers to generate frequency and severity distributions for a range of potential operational risk loss scenarios, such as an unauthorized trading incident or a material business disruption. Business experts and senior management review, and may adjust, the parameters of these scenarios to take account of business environment and internal control factors, such as risk and control self-assessment results and risk and control indicators, to provide a forward-looking assessment of each scenario. The AMA capital calculation approved by FINMA includes all litigation-related provisions and also an add-on component relating to the aggregate range of reasonably possible litigation losses that are disclosed in our financial statements but are not covered by existing provisions. Insurance mitigation is included in the regulatory capital requirement for operational risk where appropriate, by considering the level of insurance coverage for each scenario and incorporating haircuts as appropriate. The internal model then uses the adjusted parameters to generate an overall loss distribution for the Group over a one-year time horizon. The AMA capital requirement represents the 99.9th percentile of this overall loss distribution. In 2014, we introduced a more risk-sensitive approach to allocating the AMA capital requirement to businesses that is designed to be more forward looking and incentivize appropriate risk management behaviors.

> Refer to “Operational risk” (pages 141 to 144) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2014 for information on operational risk.

Non-counterparty-related risk

Regulatory fixed risk weights are applied to non-counterparty-related exposures. Non-counterparty-related exposures arise from holdings of premises and equipment, real estate and investments in real estate entities.

BIS capital metrics

Regulatory capital and ratios

Regulatory capital is calculated and managed according to Basel regulations and used to determine BIS ratios. BIS ratios compare eligible CET1 capital, tier 1 capital and total capital with BIS risk-weighted assets.

> Refer to “Risk-weighted assets” (pages 116 to 118) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – BIS capital metrics in the Credit Suisse Annual Report 2014 for information on risk-weighted assets movements in 2014.

Summary of BIS risk-weighted assets and capital requirements - Basel III
end of	2014			2013
	Risk- weighted assets	Capital require- ment	¹	Risk- weighted assets	Capital require- ment	¹
CHF million
Credit risk
Advanced-IRB	123,854	9,908		116,772	9,342
Standardized	3,789	303		3,640	291
Credit risk by asset class	127,643	10,211		120,412	9,633
Advanced-IRB	11,849	948		14,935	1,195
Standardized	761	61		0	0
Securitization risk in the banking book	12,610	1,009		14,935	1,195
Advanced – IRB Simple	15,292	1,223		9,833	787
Equity type securities in the banking book	15,292	1,223		9,833	787
Advanced CVA	15,092	1,207		10,650	852
Standardized CVA	38	3		56	4
Credit valuation adjustment risk	15,130	1,210		10,706	856
Standardized - Fixed risk weights	12,640	1,011		12,500	1,000
Exposures below 15% threshold²	12,640	1,011		12,500	1,000
Advanced	3,427	274		1,906	152
Central counterparties (CCP) risk	3,427	274		1,906	152
Standardized - Fixed risk weights	552	44		512	41
Settlement risk	552	44		512	41
Advanced	1,050	84		281	22
Standardized	4,319	346		4,546	364
Other items³	5,369	430		4,827	386
Total credit risk	192,663	15,413		175,631	14,050
Market risk
Advanced	34,049	2,724		38,719	3,098
Standardized	419	34		414	33
Total market risk	34,468	2,758		39,133	3,131
Operational risk
Advanced measurement	58,413	4,673		53,075	4,246
Total operational risk	58,413	4,673		53,075	4,246
Non-counterparty-related risk
Standardized - Fixed risk weights	5,866	469		6,007	481
Total non-counterparty-related risk	5,866	469		6,007	481
Total BIS risk-weighted assets and capital requirements	291,410	23,313		273,846	21,908
of which advanced	263,026	21,042		246,171	19,694
of which standardized	28,384	2,271		27,675	2,214
1 Calculated as 8% of risk-weighted assets.
2 Exposures below 15% threshold are risk-weighted at 250%. Refer to table "Additional information" in section "Reconciliation requirements" for further information.
3 Includes risk-weighted assets of CHF 3,853 million and CHF 4,158 million as of the end of 2014 and 2013, respectively, related to items that were risk-weighted under Basel II.5 and are phased in as capital deductions under Basel III. Refer to table "Additional information" in section "Reconciliation requirements" for further information.

BIS eligible capital - Basel III
	Group		Bank
end of	2014	2013	2014	2013
Eligible capital (CHF million)
CET1 capital	43,322	42,989	40,853	37,700
Total tier 1 capital	49,804	46,061	47,114	40,769
Total eligible capital	60,751	56,288	58,111	52,346

The following table presents the Basel III phase-in requirements for each of the relevant capital components and discloses the Group’s and the Bank’s current capital metrics against those requirements.

BIS capital ratios - Basel III - Group
end of	2014				2013
	Ratio	Requirement	²	Excess	Ratio	Requirement	²	Excess
Capital ratios (%)
Total CET1¹	14.9	4.0		10.9	15.7	3.5		12.2
Tier 1	17.1	5.5		11.6	16.8	4.5		12.3
Total capital	20.8	8.0		12.8	20.6	8.0		12.6
1 Capital conservation buffer and G-SIB buffer requirement will be phased in from January 1, 2016 through January 1, 2019.
2 Excludes countercyclical buffer that was required as of September 30, 2013. As of the end of 2014 and 2013, our countercyclical buffer was CHF 297 million and CHF 144 million, which is equivalent to an additional requirement of 0.1% and 0.05% of CET1 capital, respectively.

BIS capital ratios - Basel III - Bank
end of	2014				2013
	Ratio	Requirement	²	Excess	Ratio	Requirement	²	Excess
Capital ratios (%)
Total CET1¹	14.4	4.0		10.4	14.3	3.5		10.8
Tier 1	16.6	5.5		11.1	15.4	4.5		10.9
Total capital	20.5	8.0		12.5	19.8	8.0		11.8
1 Capital conservation buffer and G-SIB buffer requirement will be phased in from January 1, 2016 through January 1, 2019.
2 Excludes countercyclical buffer that was required as of September 30, 2013. As of the end of 2014 and 2013, our countercyclical buffer was CHF 246 million and CHF 121 million, which is equivalent to an additional requirement of 0.09% and 0.05% of CET1 capital, respectively.

Swiss capital metrics

Swiss regulatory capital and ratios

> Refer to “Swiss Requirements” for further information on Swiss regulatory requirements.

As of the end of 2014, our Swiss CET1 capital and Swiss total capital ratios were 14.8% and 20.7%, respectively, compared to the Swiss capital ratio phase-in requirements of 6.75% and 10.18%, respectively.

Swiss risk-weighted assets - Group

end of

2014

2013

Ad-
vanced

Stan-
dardized

Total

Ad-
vanced

Stan-
dardized

Total

Risk-weighted assets (CHF million)

Total BIS risk-weighted assets

263,026

28,384

291,410

246,171

27,675

273,846

Impact of differences in thresholds¹

(33)

(32)

(17)

415

398

Other multipliers²

1,090

–

1,090

617

–

617

Total Swiss risk-weighted assets

264,117

28,351

292,468

246,771

28,090

274,861

Represents the impact on risk-weighted assets of differences in regulatory thresholds resulting from Swiss regulatory CET1 adjustments.

Primarily includes differences in credit risk multiplier.

Swiss statistics - Basel III
	Group			Bank
end of	2014		2013	2014		2013
Capital development (CHF million)
CET1 capital	43,322		42,989	40,853		37,700
Swiss regulatory adjustments¹	(133)		1,658	(111)		1,711
Swiss CET1 capital²	43,189		44,647	40,742		39,411
High-trigger capital instruments	8,893	³	7,743	8,944	³	7,743
Low-trigger capital instruments	9,406	⁴	6,005	8,480	⁵	5,163
Additional tier 1 and tier 2 instruments subject to phase-out⁶	6,663		–	6,669		–
Deductions from additional tier 1 and tier 2 capital⁶	(7,533)		–	(6,835)		–
Swiss total eligible capital²	60,618		58,395	58,000		52,317
Capital ratios (%)
Swiss CET1 ratio	14.8		16.2	14.3		14.9
Swiss total capital ratio	20.7		21.2	20.4		19.7
1 Includes adjustments for certain unrealized gains outside the trading book and, in 2013, also included tier 1 participation securities, which were redeemed in 1Q14.
2 Previously referred to as Swiss Core Capital and Swiss Total Capital, respectively.
3 Consists of CHF 6.2 billion additional tier 1 instruments and CHF 2.7 billion tier 2 instruments.
4 Consists of CHF 5.1 billion additional tier 1 instruments and CHF 4.3 billion tier 2 instruments.
5 Consists of CHF 4.2 billion additional tier 1 instruments and CHF 4.3 billion tier 2 instruments.
6 Reflects the FINMA Decree, which was effective in 1Q14.

The following table presents the Swiss Requirements for each of the relevant capital components and discloses our current capital metrics against those requirements.

Swiss capital requirements and coverage

Group

Bank

Capital requirements

end of

Minimum
component

Buffer
component

Progressive
component

Excess

2014

Minimum
component

Buffer
component

Progressive
component

Excess

2014

Risk-weighted assets (CHF billion)

Swiss risk-weighted assets

–

292.5

–

284.0

2014 Swiss capital requirements ¹

Minimum Swiss total capital ratio

4.0%

4.5%

1.68%

–

10.18%

4.0%

4.5%

1.68%

–

10.18%

Minimum Swiss total eligible capital (CHF billion)

11.7

13.2

4.9

–

29.8

11.4

12.8

4.8

–

28.9

Swiss capital coverage (CHF billion)

Swiss CET1 Capital

11.7

8.0

–

23.4

43.2

11.4

7.8

–

21.6

40.7

High-trigger capital instruments

–

5.1

–

3.8

8.9

–

5.0

–

4.0

8.9

Low-trigger capital instruments

–

4.9

4.5

9.4

–

4.8

3.7

8.5

Additional tier 1 and tier 2 instruments subject to phase-out

–

6.7

–

6.7

Deductions from additional tier 1 and tier 2 capital

–

(7.5)

–

(6.8)

Swiss total eligible capital

11.7

13.2

4.9

30.9

60.6

11.4

12.8

4.8

29.1

58.0

Capital ratios (%)

Swiss total capital ratio

4.0%

4.5%

1.68%

10.5%

20.7%

4.0%

4.5%

1.68%

10.2%

20.4%

Rounding differences may occur.

The Swiss capital requirements are based on a percentage of risk-weighted assets.

Excludes countercyclical buffer that was required as of September 30, 2013.

Credit risk

General

Credit risk consists of the following categories:

– Credit risk by asset class

– Securitization risk in the banking book

– Equity type securities in the banking book

– CVA risk

– Exposures below 15% threshold

– CCP risk

– Settlement risk

– Other items

> Refer to “Credit risk” (pages 139 to 141 and pages 152 to 160) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2014 for information on our credit risk management approach, ratings and risk mitigation and impaired exposures and allowances.

Credit risk by asset class

General

For regulatory purposes, we categorize our exposures into asset classes with different underlying risk characteristics including type of counterparty, size of exposure and type of collateral. The asset class categorization is driven by regulatory rules from the Basel framework.

The following table presents the description of credit risk by asset class under the Basel framework (grouped as either institutional or retail) and the related regulatory approaches used.

Credit risk by asset class - Overview
Asset class	Description	Approaches

Institutional credit risk (mostly in the Investment Banking division)
Sovereigns	Exposures to central governments, central banks, BIS, the International Monetary Fund, the European Central Bank and eligible Multilateral Development Banks (MDB).	PD/LGD for most portfolios Standardized for banking book treasury liquidity positions and other assets
Other institutions	Exposures to public bodies with the right to raise taxes or whose liabilities are guaranteed by a public sector entity.	PD/LGD for most portfolios Standardized for banking book treasury liquidity positions and other assets
Banks	Exposures to banks, securities firms, stock exchanges and those MDB that do not qualify for sovereign treatment.	PD/LGD for most portfolios SRW for unsettled trades Standardized for banking book treasury liquidity positions and other assets
Corporates	Exposures to corporations (except small businesses) and public sector entities with no right to raise taxes and whose liabilities are not guaranteed by a public entity. The Corporate asset class also includes specialized lending, in which the lender looks primarily to a single source of revenues to cover the repayment obligations and where only the financed asset serves as security for the exposure (e.g., income producing real estate or commodities finance).	PD/LGD for most portfolios SRW for Investment Banking specialized lending exposures Standardized for banking book treasury liquidity positions and other assets

Retail credit risk (mostly in the Private Banking & Wealth Management division)
Residential mortgages	Includes exposures secured by residential real estate collateral occupied or let by the borrower.	PD/LGD
Qualifying revolving retail	Includes credit card receivables and overdrafts.	PD/LGD
Other retail	Includes loans collateralized by securities, consumer loans, leasing and small business exposures.	PD/LGD Standardized for other assets

Other credit risk
Other exposures	Includes exposures with insufficient information to treat under the A-IRB approach or to allocate under the Standardized approach into any other asset class.	Standardized

Gross credit exposures, risk-weighted assets and capital requirement

The following table presents the derivation of risk-weighted assets from the gross credit exposures (pre- and post-substitution), broken down by regulatory approach and by the credit asset class under the Basel framework.

Gross credit exposures and risk-weighted assets by regulatory approach
end of	2014						2013
	Exposure			Risk- weighted assets	Capital require- ment	¹	Exposure			Risk- weighted assets	Capital require- ment	¹
	Pre- substitution	²	Post- substitution				Pre- substitution	²	Post- substitution
A-IRB (CHF million)
PD/LGD
Sovereigns	83,167		77,037	3,714	297		71,220		68,539	3,567	285
Other institutions	2,306		2,381	532	43		1,875		1,866	388	31
Banks	33,324		38,062	10,608	849		32,676		38,398	10,510	841
Corporates	202,960		204,277	83,192	6,655		174,997		171,965	79,912	6,393
Total institutional	321,757		321,757	98,046	7,844		280,768		280,768	94,377	7,550
Residential mortgage	101,350		101,350	11,117	889		98,800		98,800	10,525	842
Qualifying revolving retail	672		672	238	19		699		699	246	20
Other retail	78,449		78,449	11,509	921		63,056		63,056	11,100	888
Total retail	180,471		180,471	22,864	1,829		162,555		162,555	21,871	1,750
Total PD/LGD	502,228		502,228	120,910	9,673		443,323		443,323	116,248	9,300
Supervisory risk weights (SRW)
Banks	26		26	5	0		27		27	6	1
Corporates	3,516		3,516	2,939	236		998		998	518	41
Total institutional	3,542		3,542	2,944	236		1,025		1,025	524	42
Total SRW	3,542		3,542	2,944	236		1,025		1,025	524	42
Total A-IRB	505,770		505,770	123,854	9,908		444,348		444,348	116,772	9,342
Standardized (CHF million)
Sovereigns	7,306		7,306	453	36		5,497		5,497	79	6
Other institutions	175		175	35	3		245		245	55	5
Banks	319		319	74	6		727		727	301	24
Corporates	115		115	92	7		863		863	501	40
Total institutional	7,915		7,915	654	52		7,332		7,332	936	75
Other retail	184		184	149	12		47		47	21	2
Total retail	184		184	149	12		47		47	21	2
Other exposures	7,704		7,704	2,986	239		6,107		6,107	2,683	214
Total standardized	15,803		15,803	3,789	303		13,486		13,486	3,640	291

Total	521,573		521,573	127,643	10,211		457,834		457,834	120,412	9,633
of which counterparty credit risk³	99,099		99,099	25,916	2,073		75,629		75,629	25,282	2,023
1 Calculated as 8% of risk-weighted assets.
2 Gross credit exposures are shown pre- and post-substitution as, in certain circumstances, credit risk mitigation is reflected by shifting the counterparty exposure from the underlying obligor to the protection provider.
3 Includes derivatives and securities financing transactions.

Gross credit exposures and risk-weighted assets
	2014			2013
	End of	Monthly average	Risk- weighted assets	End of	Monthly average	Risk- weighted assets
Gross credit exposures (CHF million)
Loans, deposits with banks and other assets¹	361,177	337,904	75,807	323,102	319,025	70,693
Guarantees and commitments	61,297	61,307	25,920	59,103	63,849	24,437
Securities financing transactions	35,131	35,399	6,495	30,521	36,949	7,204
Derivatives	63,968	63,666	19,421	45,108	53,307	18,078
Total	521,573	498,276	127,643	457,834	473,130	120,412
1 Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Geographic distribution of gross credit exposures
end of	Switzerland	EMEA	Americas	Asia Pacific	Total
2014 (CHF million)
Loans, deposits with banks and other assets¹	165,629	86,004	78,004	31,540	361,177
Guarantees and commitments	12,509	14,584	31,931	2,273	61,297
Securities financing transactions	2,182	11,857	16,965	4,127	35,131
Derivatives	6,818	31,675	19,462	6,013	63,968
Total	187,138	144,120	146,362	43,953	521,573
2013 (CHF million)
Loans, deposits with banks and other assets¹	155,868	77,044	63,758	26,432	323,102
Guarantees and commitments	13,304	16,786	27,089	1,924	59,103
Securities financing transactions	2,349	10,234	15,824	2,114	30,521
Derivatives	3,885	24,311	12,537	4,375	45,108
Total	175,406	128,375	119,208	34,845	457,834
The geographic distribution is based on the country of incorporation or the nationality of the counterparty, shown pre-substitution.
1 Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Industry distribution of gross credit exposures
end of	Financial institutions	Commercial	Consumer	Public authorities	Total
2014 (CHF million)
Loans, deposits with banks and other assets¹	10,921	140,659	131,581	78,016	361,177
Guarantees and commitments	6,885	51,319	2,058	1,035	61,297
Securities financing transactions	7,599	23,929	9	3,594	35,131
Derivatives	12,269	41,968	2,928	6,803	63,968
Total	37,674	257,875	136,576	89,448	521,573
2013 (CHF million)
Loans, deposits with banks and other assets¹	11,872	123,330	120,955	66,945	323,102
Guarantees and commitments	3,387	51,501	2,538	1,677	59,103
Securities financing transactions	6,738	19,650	27	4,106	30,521
Derivatives	10,726	23,963	1,980	8,439	45,108
Total	32,723	218,444	125,500	81,167	457,834
Exposures are shown pre-substitution.
1 Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Remaining contractual maturity of gross credit exposures
end of	within 1 year	¹	within 1-5 years	Thereafter	Total
2014 (CHF million)
Loans, deposits with banks and other assets²	204,879		105,497	50,801	361,177
Guarantees and commitments	19,514		39,686	2,097	61,297
Securities financing transactions	34,690		434	7	35,131
Derivatives	22,420		18,940	22,608	63,968
Total	281,503		164,557	75,513	521,573
2013 (CHF million)
Loans, deposits with banks and other assets²	186,323		90,024	46,755	323,102
Guarantees and commitments	23,060		34,546	1,497	59,103
Securities financing transactions	30,170		336	15	30,521
Derivatives	15,239		17,003	12,866	45,108
Total	254,792		141,909	61,133	457,834
1 Includes positions without agreed residual contractual maturity.
2 Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Portfolios subject to PD/LGD approach

Rating models

The majority of the credit rating models used in Credit Suisse are developed internally by Credit Analytics, a specialized unit in Credit Risk Management (CRM). These models are independently validated by Model Risk Management team prior to use in the Basel III regulatory capital calculation, and thereafter on a regular basis. Credit Suisse also use models purchased from recognized data and model providers (e.g. credit rating agencies). These models are owned by Credit Analytics and are validated internally and follow the same governance process as models developed internally.

All new or material changes to rating models are subject to a robust governance process. Post development and validation of a rating model or model change, the model is taken through a number of committees where model developers, validators and users of the models discuss the technical and regulatory aspects of the model. The relevant committees opine on the information provided and decide to either approve or reject the model or model change. The ultimate decision making committee is the Risk Processes and Standards Committee (RPSC). The responsible Executive Board Member for the RPSC is the Chief Risk Officer. The RPSC sub-group responsible for rating models is the Credit Model Steering Committee (CMSC). RPSC or CMSC also review and monitor the continued use of existing models on an annual basis.

The following table provides an overview of the main PD and LGD models used by Credit Suisse. It reflects the portfolio segmentation from a credit risk model point of view, showing the risk-weighted assets, type and number of the most significant models, and the loss period available for model development by portfolio. As the table follows an internal risk segmentation and captures the most significant models only, these figures do not match regulatory asset class or other A-IRB based segmentation.

Main PD and LGD models used by Credit Suisse

LGD

Portfolio

Asset class

Risk-weighted
assets (in CHF
billion)

Number
of years
loss data

No. of
models

Model comment

No. of
models

Model comment

Statistical and hybrid models using e.g. industry and counterparty segmentation, collateral types and amounts, seniority and other transaction specific factors with granularity enhancements by public research and expert judgement

Corporates

Corporates, retail

39.0

>15 years

Statistical scorecards using e.g. balance sheet, profit & loss data and qualitative factors

Banks and other financial institutions

Banks, corporates

7.6

>30 years

Statistical scorecard and constrained expert judgement using e.g. balance sheet, profit & loss data and qualitative factors

Funds

Corporates

15.4

>10 years

Statistical scorecards using e.g. net
asset value, volatility of returns and
qualitative factors

Statistical model using e.g. counterparty segmentation, collateral types and amounts

Residential mortgages

Retail

6.6

>10 years

Statistical scorecard using e.g. loan-to-value, affordability, assets and qualitative factors

Income producing real estate

Specialized lending, retail

12.1

>10 years

Statistical scorecards using e.g. loan-to-value, debt service coverage and qualitative factors

Commodity traders

Corporates,
specialized lending

3.7

>10 years

Statistical scorecard using e.g.
volume, liquidity and duration of
financed commodity transactions

Sovereign and
public entities

Sovereign,
corporates

2.7

>10 years

Statistical scorecards and
constrained expert judgement
using e.g. GDP, financials and
qualitative factors

Statistical models using e.g. industry
and counterparty segmentation,
collateral types and amounts,
seniority and other transaction
specific factors

Ship finance

Specialized
lending

2.2

>10 years

Simulation model using e.g. freight
rates, time charter agreements,
operational expenses and debt
service coverage

Lombard

Retail

6.7

>10 years

Merton type model using e.g.
loan-to-value, collateral volatility
and counterparty attributes

Model development

The techniques to develop models are carefully selected by Credit Analytics to meet industry standards in the banking industry as well as regulatory requirements. The models are developed to exhibit “through-the-cycle” characteristics, reflecting a probability of default in a 12 month period across the credit cycle.

All models have clearly defined model owners who have primary responsibility for development, enhancement, review, maintenance and documentation. The models have to pass statistical performance tests, where feasible, followed by usability tests by designated CRM experts to proceed to formal approval and implementation. The development process of a new model is thoroughly documented and foresees a separate schedule for model updates.

The level of calibration of the models is based on a range of inputs, including internal and external benchmarks where available. Additionally, the calibration process ensures that the estimated calibration level accounts for variations of default rates through the economic cycle and that the underlying data contains a representative mix of economic states. Conservatism is incorporated in the model development process to compensate for any known or suspected limitations and uncertainties.

Model validation

Model validation for risk capital models is performed by the Model Risk Management function. Model governance is subject to clear and objective internal standards as outlined in the Model Risk Management policy and the Risk Model Validation Policy. The governance framework ensures a consistent and meaningful approach for the validation of models in scope across the bank. All models whose outputs fall into the scope of the Basel internal model framework are subject to full independent validation. Externally developed models are subject to the same governance and validation standards as internal models.

The governance process requires each in scope model to be validated and approved before go-live; the same process is followed for material changes to an existing model. Existing models

are subject to an ongoing governance process which requires each model to be periodically validated and the performance to be monitored annually. The validation process is a comprehensive quantitative and qualitative assessment with goals that include:

– to confirm that the model remains conceptually sound and the model design is suitable for its intended purpose;

– to verify that the assumptions are still valid and weaknesses and limitations are known and mitigated;

– to determine that the model outputs are accurate compared to realized outcome;

– to establish whether the model is accepted by the users and used as intended with appropriate data governance;

– to check whether a model is implemented correctly;

– to ensure that the model is fully transparent and sufficiently documented.

To meet these goals, models are validated against a series of quantitative and qualitative criteria. Quantitative analyses may include a review of model performance (comparison of model output against realized outcome), calibration accuracy against the longest time series available, assessment of a model’s ability to rank order risk and performance against available benchmarks. Qualitative assessment typically includes a review of the appropriateness of the key model assumptions, the identification of the model limitations and their mitigation, and ensuring appropriate model use. The modeling approach is re-assessed in light of developments in the academic literature and industry practice.

Results and conclusions are presented to senior risk management including the RPSC; shortcomings and required improvements identified during validation must be remediated within an agreed deadline. The Model Risk Management function is independent of model developers and users and has the final say on the content of each validation report.

Stress testing of parameters

The potential biases in PD estimates in unusual market conditions are accounted for by the use of long run average estimates. Credit Suisse additionally uses stress-testing when back-testing PD models. When predefined thresholds are breached during back-testing, a review of the calibration level is undertaken. For LGD/CCF calibration stress testing is applied in defining Downturn LGD/CCF values, reflecting potentially increased losses during stressed periods.

Descriptions of the rating processes

All counterparties that Credit Suisse is exposed to are assigned an internal credit rating. The rating is assigned at the time of initial credit approval and subsequently reviewed and updated on an ongoing basis. Rating determination is based on relevant quantitative data (such as financial statements and financial projections) and qualitative factors relating to the counterparty which is used by CRM by employing a quantitative model which incorporates expert judgement through a well governed model override process in the assignment of a credit rating or PD, which measures the counterparty’s risk of default over a one-year period.

Counterparty and transaction rating process – Corporates (excluding corporates managed on the Swiss platform), banks and sovereigns (primarily in the Investment Banking division)

Where rating models are used, the models are an integral part of the rating process, and the outputs from the models are complemented with other relevant information by credit officers via a robust model-override framework where information not captured by the models is taken into account by experienced credit officers. In addition to the information captured by the rating models, credit officers make use of peer analysis, industry comparisons, external ratings and research and the judgment of credit experts to complement the model ratings. This analysis emphasizes a forward looking approach, concentrating on economic trends and financial fundamentals. Where rating models are not used the assignment of credit ratings is based on a well-established expert judgment based process which captures key factors specific to the type of counterparty.

For structured and asset finance deals, the approach is more quantitative. The focus is on the performance of the underlying assets, which represent the collateral of the deal. The ultimate rating is dependent upon the expected performance of the underlying assets and the level of credit enhancement of the specific transaction. Additionally, a review of the originator and/or servicer is performed. External ratings and research (rating agency and/or fixed income and equity), where available, are incorporated into the rating justification, as is any available market information (e.g., bond spreads, equity performance).

Transaction ratings are based on the analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed include seniority, industry and collateral. The analysis emphasizes a forward looking approach.

Counterparty and transaction rating process – Corporates managed on the Swiss platform, mortgages and other retail (primarily in the Private Banking & Wealth Management division)

For corporates managed on the Swiss platform and mortgage lending, the PD is calculated directly by proprietary statistical rating models, which are based on internally compiled data comprising both quantitative factors (primarily loan-to-value ratio and the borrower’s income level for mortgage lending and balance sheet information for corporates) and qualitative factors (e.g., credit histories from credit reporting bureaus). In this case, an equivalent rating is assigned for reporting purposes, based on the PD band associated with each rating. Collateral loans, which form the largest part of “other retail”, are treated according to Basel III rules with pool PD and pool LGD based on historical loss experience. Most of the collateral loans are loans collateralized by securities.

The internal rating grades are mapped to the Credit Suisse Internal Masterscale. The PDs assigned to each rating grade are reflected in the following table.

Credit Suisse counterparty ratings

Ratings

PD bands (%)

Definition

S&P

Fitch

Moody's

Details

AAA

0.000 - 0.021

Substantially
risk free

AAA

Aaa

Extremely low risk, very high long-term
stability, still solvent under extreme conditions

AA+
AA
AA-

0.021 - 0.027
0.027 - 0.034
0.034 - 0.044

Minimal risk

AA+
AA
AA-

Aa1
Aa2
Aa3

Very low risk, long-term stability, repayment
sources sufficient under lasting adverse
conditions, extremely high medium-term stability

A+
A
A-

0.044 - 0.056
0.056 - 0.068
0.068 - 0.097

Modest risk

A+
A
A-

A1
A2
A3

Low risk, short- and mid-term stability, small adverse
developments can be absorbed long term, short- and
mid-term solvency preserved in the event of serious
difficulties

BBB+
BBB
BBB-

0.097 - 0.167
0.167 - 0.285
0.285 - 0.487

Average risk

BBB+
BBB
BBB-

Baa1
Baa2
Baa3

Medium to low risk, high short-term stability, adequate
substance for medium-term survival, very stable short
term

BB+
BB
BB-

0.487 - 0.839
0.839 - 1.442
1.442 - 2.478

Acceptable risk

BB+
BB
BB-

Ba1
Ba2
Ba3

Medium risk, only short-term stability, only capable of
absorbing minor adverse developments in the medium term,
stable in the short term, no increased credit risks expected
within the year

B+
B
B-

2.478 - 4.259
4.259 - 7.311
7.311 - 12.550

High risk

B+
B
B-

B1
B2
B3

Increasing risk, limited capability to absorb
further unexpected negative developments

CCC+
CCC
CCC-
CC

12.550 - 21.543
21.543 - 100.00
21.543 - 100.00
21.543 - 100.00

Very high
risk

CCC+
CCC
CCC-
CC

Caa1
Caa2
Caa3
Ca

High risk, very limited capability to absorb
further unexpected negative developments

C
D1
D2

100
Risk of default
has materialized

Imminent or
actual loss

C
D

Substantial credit risk has materialized, i.e. counterparty
is distressed and/or non-performing. Adequate specific
provisions must be made as further adverse developments
will result directly in credit losses.

Transactions rated C are potential problem loans; those rated D1 are non-performing assets and those rated D2 are non-interest earning.

Use of internal ratings

Internal ratings play an essential role in the decision-making and the credit approval processes. The portfolio credit quality is set in terms of the proportion of investment and non-investment grade exposures. Investment/non-investment grade is determined by the internal rating assigned to a counterparty.

Internal counterparty ratings (and associated PDs), transaction ratings (and associated LGDs) and CCF for loan commitments are inputs to risk-weighted assets and Economic Risk Capital (ERC) calculations. Model outputs are the basis for risk-adjusted-pricing or assignment of credit competency levels.

The internal ratings are also integrated into the risk management reporting infrastructure and are reviewed in senior risk management committees. These committees include the Chief Executive Officer, Chief Credit Officer (CCO), Regional CCO, RPSC and Capital Allocation Risk Management Committee (CARMC).

To ensure ratings are assigned in a robust and consistent basis, the Global Risk Review Function (GRR) perform periodic portfolio reviews which cover, amongst other things:

– accuracy and consistency of assigned counterparty/transaction ratings;

– transparency of rating justifications (both the counterparty rating and transaction rating);

– quality of the underlying credit analysis and credit process;

– adherence to Credit Suisse policies, guidelines, procedures, and documentation checklists.

The GRR function is an independent control function within the CRM which reports to the head of Global Credit Control.

Institutional credit exposures by counterparty rating under PD/LGD approach
end of 2014	Total exposure (CHF m)	Exposure- weighted average LGD (%)	Exposure- weighted average risk weight (%)	¹	Undrawn commit- ments (CHF m)
Sovereigns
AAA	33,353	5.56	0.79		21
AA	36,154	6.36	1.72		137
A	1,185	38.52	14.36		–
BBB	5,349	44.82	29.03		2
BB	711	26.91	56.96		–
B or lower	281	42.48	173.03		–
Default (net of specific provisions)	4	–	–		–
Total credit exposure	77,037	–	–		160
Exposure-weighted average CCF (%)²	99.79	–	–		–
Other institutions
AAA	–	–	–		–
AA	1,538	45.21	10.82		227
A	174	40.42	16.81		39
BBB	536	43.41	38.93		101
BB	47	43.73	75.48		6
B or lower	86	27.37	72.76		4
Default (net of specific provisions)	–	–	–		–
Total credit exposure	2,381	–	–		377
Exposure-weighted average CCF (%)²	75.27	–	–		–
Banks
AAA	–	–	–		–
AA	7,577	51.00	11.75		930
A	20,779	51.76	17.85		2,599
BBB	6,603	45.39	41.00		278
BB	2,364	49.70	77.06		74
B or lower	587	40.17	124.04		46
Default (net of specific provisions)	152	–	–		–
Total credit exposure	38,062	–	–		3,927
Exposure-weighted average CCF (%)²	94.46	–	–		–
Corporates
AAA	–	–	–		–
AA	46,771	48.29	12.97		8,522
A	46,692	38.79	16.28		10,783
BBB	49,069	35.93	34.05		10,280
BB	43,584	33.60	67.54		6,515
B or lower	17,312	30.47	102.92		6,181
Default (net of specific provisions)	849	–	–		20
Total credit exposure	204,277	–	–		42,301
Exposure-weighted average CCF (%)²	75.87	–	–		–
Total institutional credit exposure	321,757	–	–		46,765
1 The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
2 Calculated before credit risk mitigation.

Institutional credit exposures by counterparty rating under PD/LGD approach (continued)
end of 2013	Total exposure (CHF m)	Exposure- weighted average LGD (%)	Exposure- weighted average risk weight (%)	¹	Undrawn commit- ments (CHF m)
Sovereigns
AAA	27,171	6.01	0.93		19
AA	33,173	6.41	1.79		79
A	925	43.53	13.25		30
BBB	6,431	46.95	24.86		1
BB	185	34.98	68.09		3
B or lower	376	29.24	104.84		–
Default (net of specific provisions)	278	–	–		–
Total credit exposure	68,539	–	–		132
Exposure-weighted average CCF (%)²	99.77	–	–		–
Other institutions
AAA	–	–	–		–
AA	1,084	41.30	10.12		448
A	147	44.16	14.58		63
BBB	499	41.08	28.96		134
BB	44	43.11	69.47		8
B or lower	92	18.33	64.35		1
Default (net of specific provisions)	–	–	–		–
Total credit exposure	1,866	–	–		654
Exposure-weighted average CCF (%)²	57.40	–	–		–
Banks
AAA	–	–	–		–
AA	6,883	48.74	11.10		894
A	20,843	48.72	17.32		2,010
BBB	6,458	40.23	35.46		294
BB	3,512	38.67	72.19		144
B or lower	553	34.23	102.64		16
Default (net of specific provisions)	149	–	–		–
Total credit exposure	38,398	–	–		3,358
Exposure-weighted average CCF (%)²	93.63	–	–		–
Corporates
AAA	–	–	–		–
AA	32,560	46.10	11.57		6,655
A	32,436	42.23	18.57		8,851
BBB	46,770	37.54	36.27		11,283
BB	43,171	35.82	66.58		5,056
B or lower	15,927	35.40	117.94		5,113
Default (net of specific provisions)	1,101	–	–		8
Total credit exposure	171,965	–	–		36,966
Exposure-weighted average CCF (%)²	76.33	–	–		–
Total institutional credit exposure	280,768	–	–		41,110
1 The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
2 Calculated before credit risk mitigation.

Retail credit exposures by expected loss band under PD/LGD approach
end of 2014	Total exposure (CHF m)	Exposure- weighted average LGD (%)	Exposure- weighted average risk weight (%)	¹	Undrawn commit- ments (CHF m)
Residential mortgages
0.00%-0.15%	95,468	15.74	8.46		1,298
0.15%-0.30%	3,695	28.75	29.50		102
0.30%-1.00%	1,820	28.97	52.53		26
1.00% and above	148	24.98	100.87		–
Defaulted (net of specific provisions)	219	–	–		1
Total credit exposure	101,350	–	–		1,427
Exposure-weighted average CCF (%)²	97.94	–	–		–
Qualifying revolving retail
0.00%-0.15%	–	–	–		–
0.15%-0.30%	–	–	–		–
0.30%-1.00%	491	50.00	23.35		–
1.00% and above	180	20.00	60.59		–
Defaulted (net of specific provisions)	1	–	–		–
Total credit exposure	672	–	–		–
Exposure-weighted average CCF (%)²	99.98	–	–		–
Other retail
0.00%-0.15%	72,559	53.58	10.55		1,192
0.15%-0.30%	924	60.79	31.91		73
0.30%-1.00%	2,406	44.30	48.46		73
1.00% and above	2,407	46.39	65.96		48
Defaulted (net of specific provisions)	153	–	–		3
Total credit exposure	78,449	–	–		1,389
Exposure-weighted average CCF (%)²	94.91	–	–		–
Total retail credit exposure	180,471	–	–		2,816
1 The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
2 Calculated before credit risk mitigation.

Retail credit exposures by expected loss band under PD/LGD approach (continued)
end of 2013	Total exposure (CHF m)	Exposure- weighted average LGD (%)	Exposure- weighted average risk weight (%)	¹	Undrawn commit- ments (CHF m)
Residential mortgages
0.00%-0.15%	91,837	15.83	7.82		1,195
0.15%-0.30%	4,355	29.06	29.31		145
0.30%-1.00%	2,226	28.71	49.38		45
1.00% and above	162	23.87	91.49		–
Defaulted (net of specific provisions)	220	–	–		1
Total credit exposure	98,800	–	–		1,386
Exposure-weighted average CCF (%)²	97.89	–	–		–
Qualifying revolving retail
0.00%-0.15%	–	–	–		–
0.15%-0.30%	–	–	–		–
0.30%-1.00%	515	50.00	23.35		–
1.00% and above	183	20.00	60.59		–
Defaulted (net of specific provisions)	1	–	–		–
Total credit exposure	699	–	–		–
Exposure-weighted average CCF (%)²	99.98	–	–		–
Other retail
0.00%-0.15%	57,924	54.15	13.42		1,218
0.15%-0.30%	503	47.03	29.61		60
0.30%-1.00%	2,284	39.25	46.02		111
1.00% and above	2,143	40.79	60.44		41
Defaulted (net of specific provisions)	202	–	–		2
Total credit exposure	63,056	–	–		1,432
Exposure-weighted average CCF (%)²	93.68	–	–		–
Total retail credit exposure	162,555	–	–		2,818
1 The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
2 Calculated before credit risk mitigation.

Loss analysis – regulatory expected loss vs. cumulative actual loss

The following table shows the regulatory expected loss as of the beginning of the years compared with the cumulative actual loss incurred during the year ended December 31, 2014 and 2013, respectively, for those portfolios where credit risk is calculated using the IRB approach.

Analysis of expected loss vs. cumulative actual loss
	2014		2013
	Expected loss (beginning of year)	Cumulative actual loss	Expected loss (beginning of year)	Cumulative actual loss
Losses (CHF million)
Sovereigns	13	0	13	108
Banks	275	221	360	226
Other institutions	2	260	4	163
Corporates¹	1,496	903	1,297	965
Residential mortgages	93	23	108	42
Other retail (including qualifying revolving retail)	315	272	322	324
Total losses	2,194	1,679	2,104	1,828
1 Excludes specialized lending portfolios that are not subject to the PD/LGD approach.

Regulatory expected loss

Regulatory expected loss is a Basel III measure based on Pillar 1 metrics which is an input to the capital adequacy calculation. Regulatory expected loss can be seen as an expectation of average future loss as derived from our IRB models, and is not a prediction of future impairment. For non-defaulted assets, regulatory expected loss is calculated using PD and downturn estimates of LGD and CCF. For the calculation of regulatory expected loss for defaulted accrual accounted assets, PD is 100% and LGD is based on an estimate of likely recovery levels for each asset.

Cumulative actual loss

Cumulative actual loss comprises two parts: the opening impairment balance and the net specific impairment losses for loans held at amortized cost and actual value charges providing an equivalent impairment measure for both fair value loans and counterparty exposures as if these were loans held at amortized cost (excluding any realized CDS gains). The actual value charges may not necessarily be the same as the fair value movements recorded through the consolidated statements of operations.

Cumulative actual loss can also include charges against assets that were originated during the year and were therefore outside of the scope of the regulatory expected loss calculated at the beginning of the year. Cumulative actual loss does not include the effects on the impairment balance of amounts written off during the year.

The average cumulative actual loss over the last two years is below the expected loss estimates reflecting a level of conservatism in the corporate and residential mortgage rating models. The Other Retail asset class models were recalibrated upwards in 2013 resulting in a higher expected loss as of the year end.

The following table presents the components of the cumulative actual loss.

Cumulative actual loss
	2014				2013
	Opening impairment balance	Specific impairment losses	Actual value charges	Total actual loss	Opening impairment balance	Specific impairment losses	Actual value charges	Total actual loss
CHF million
Sovereigns	77	0	(77)	0	196	0	(88)	108
Banks	221	0	0	221	220	0	6	226
Other institutions	187	(3)	76	260	166	1	(4)	163
Corporates¹	611	124	168	903	779	89	97	965
Residential mortgages	25	(2)	0	23	38	4	0	42
Other retail	196	76	0	272	241	83	0	324
Total	1,317	195	167