EBA published a report on its 2016 credit valuation adjustment (CVA) risk monitoring exercise. The report assesses the impact on own funds requirements of the reintegration of the transactions currently exempted from the scope of the CVA risk charge. The results, in line with those of the previous monitoring exercise, continue to show the materiality of CVA risks that are currently not capitalized due to the Capital Requirements Regulation (CRR) exemptions. Taking into account caveats on data quality, the results highlight that the median bank would see its current CVA risk charge multiplied by 3.06 when reintegrating exempted transactions.
EBA produced this report on the basis of data submitted by 169 major EU institutions, representing 27 member states, with reference date as of December 31, 2016. This is the second EBA report on CVA risk monitoring. The report has been drafted in accordance with Article 456(2) of CRR (EU Regulation No 575/2013), which mandates EBA to monitor the own funds requirements for credit valuation adjustment risk. In the CVA Report published in February 2015, EBA had identified a number of possible improvements to the CVA framework that should be introduced at the European level and should be taken into account in the revision of the Basel CVA framework.
The Basel III post crisis reforms, which BCBS finalized and issued on December 07, 2017 include, among others, the revised framework for CVA risk. Consequently, EBA will extend the scope of the 2017 CVA risk monitoring exercise to assess the impact of CRR exemptions also in the context of the future implementation of the revised CVA standards in the EU. EBA has already started data collection for the 2017 CVA risk monitoring exercise, which will be part of its regular Basel III monitoring exercise. To this end, EBA has drafted and included, in the Basel III monitoring reporting template, an EU-specific worksheet on CVA and its related instructions.
Keywords: Europe, EU, Banking, CVA Risk, Credit Risk, CRR, Basel III, EBA
Previous ArticleBCBS Issues Fourteenth Progress Report on Adoption of Basel III
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.