Featured Product

    BCBS Proposes Revisions to Credit Valuation Adjustment Risk Framework

    November 28, 2019

    BCBS issued consultation on a set of limited, targeted, and final adjustments to the credit valuation adjustment (CVA) risk framework. The revisions aim to align relevant parts of the revised CVA risk framework with the minimum capital requirements for market risk published in January 2019 as well as capital requirements for bank exposures to central counterparties. BCBS is seeking feedback on a possible adjustment to the overall calibration of capital requirements calculated under the CVA standardized and basic approaches. The annex to the paper includes the proposed specific amendments to the standards. The required implementation date of the revised CVA risk framework continues to be January 01, 2022. The comment period on the consultation ends on February 25, 2020.

    The proposed adjustments comprise two types of revisions. The finalization of the market risk framework in January 2019 included changes to some of the market risk standardized approach risk-weights, which in turn impact the CVA framework. Given that the risk-weights of the CVA risk framework are largely based on the January 2016 market risk standard, BCBS is proposing to reflect the corresponding market risk revisions in the CVA risk framework. BCBS is proposing adjustments to the risk-weights in the CVA standardized approach (SA-CVA) for interest rate risk, foreign exchange risk, and certain exposures subject to counterparty credit spread risk and reference credit spread risk. In addition, BCBS is proposing to introduce a new approach to calculate capital requirements for instruments with market values, depending on credit and equity indices, as well as a new formula for aggregating the CVA capital requirement, in line with the revisions to the market risk framework.

    BCBS is also considering additional targeted revisions to the CVA risk framework. These 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. Moreover, BCBS is  considering reducing the margin period of risk for some centrally cleared client derivatives in the SA-CVA, which would bring the CVA requirement more in line with the counterparty credit risk (CCR) framework and further incentivize banks to centrally clear over-the-counter (OTC) derivatives. Finally, BCBS is seeking feedback on whether a possible calibration adjustment of the SA-CVA is warranted. This would be achieved by changing the existing multiplier mCVA from its current value of 1.25 to [1 to 1.25]. BCBS is considering revising the calibration of the basic approach (BA-CVA) to have an appropriate relative calibration between the SA-CVA and the BA-CVA. Any such adjustments would have to be based on sound empirical evidence.

     

    Related Links

    Comment Due Date: February 25, 2020

    Effective Date: January 01, 2022

    Keywords: International, Banking, CVA, CVA Risk, Minimum Capital Requirements, Basel III, Market Risk, CCP, SA-CVA, OTC Derivatives, Credit Risk, BA-CVA, Securities Financing Transactions, BCBS

    Featured Experts
    Related Articles
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196