Basel Committee publishes consultation paper on revisions to the CVA risk framework

The Basel Committee on Banking Supervision has published a consultative document on revisions to the credit valuation adjustment (CVA) risk framework. It seeks the views of stakeholders on a set of limited adjustments to the CVA risk framework published in December 2017.

CVA risk is the exposure to changes in counterparty credit spreads and other market risk factors. It is typically incurred by banks that undertake derivative or securities financing transactions, which run the risk of mark-to-market losses if the creditworthiness of the counterparties deteriorates. CVA risk is complementary to the risk of a counterparty’s default, which is known as counterparty credit risk.

The first set of proposed revisions aims to align the CVA framework with the final market risk framework, which was published in January 2019 and replaced the version issued in January 2016. As the current calibration of the CVA risk framework is based largely on the January 2016 market risk standard, the Committee proposes to reflect the corresponding market risk revisions from January 2019 in the CVA risk framework.

The Committee is also considering adjusting the scope of portfolios subject to CVA risk capital requirements and also seeks feedback on a possible calibration adjustment of the overall capital requirements calculated under the CVA standardised and basic approaches.

Revisions include adjusting the scope of portfolios subject to CVA risk capital requirements by excluding some securities financing transactions (SFTs) where the CVA risks stemming from such positions are not material, and exempting certain client-cleared derivatives.

The required implementation date of the revised CVA risk framework continues to be 1 January 2022.

Read the release

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