Featured Product

    ISDA, GFMA, and IIF Respond to BCBS Proposal on CVA Risk Framework

    February 26, 2020

    ISDA, the Global Financial Markets Association (GFMA), and the Institute of International Finance (IIF) submitted a joint comment letter to BCBS on its consultation on final revisions to the credit valuation adjustment (CVA) risk framework. The letter outlines the importance of CVA and summarizes the results of a quantitative impact study conducted by the Associations with input from 25 global banks with large trading book activities. Given the potential impact of the proposed CVA framework, the Associations urge BCBS to consider and act on the further revisions highlighted in the key recommendations to avoid any unintended consequences while still achieving the regulatory objectives.

    Targeted revisions such as the adjustment of the CVA multiplier, changes to risk-weights and the aggregation formula, and the reconsideration of the scope of application to exclude immaterial security finance transactions are significant improvements over the 2017 CVA risk framework. The Associations support the introduction of a scalar for the appropriate calibration of basic approach to calculation of capital requirements for CVA (BA-CVA), but believe that further revisions are needed to address design and calibration issues that still exist in the framework and to better reflect the underlying economic risks. The Associations seek definitional clarifications with respect to the standard in relation to the treatment of Guarantees, Expected Loss Given Default, and single name proxy hedges. Additionally, the Associations believe that the proposed recommendations are intended to incentivize prudent hedging of CVA risk, which is a primary objective of the new framework. The key recommendations are to:

    • Improve the granularity of the counterparty credit spread risk-weights. At a minimum, recognize the differentiation in CVA risk profiles between financial counterparties.
    • Improve the recognition of CVA Index hedges to better reflect their usage to hedge systematic credit spread risk as opposed to specific sectoral or counterparty risk and incentivize prudent hedging within the industry.
    • Revise the scope of application and modeling parameters to more closely align with industry practice to determine the accounting fair value recognized in banks’ financial accounts and reduce operational burden.

     

    Related Links

    Keywords: International, Banking, CVA, CVA Risk, Basel III, Market Risk, BA-CVA, Responses to Consultation, Regulatory Capital, BCBS

    Featured Experts
    Related Articles
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425