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

    BoE Seeks Information Before Migrating Statistical Reporting to BEEDS

    The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.

    October 25, 2021 WebPage Regulatory News
    News

    FCA Publishes Final Rules on Investment Firms Prudential Regime

    The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).

    October 25, 2021 WebPage Regulatory News
    News

    CFRF Publishes Guides to Manage Financial Risks from Climate Change

    The working groups of the Climate Financial Risk Forum (CFRF) published a second round of guides (or Session 2 guides), written by the industry for the industry, to help financial firms manage climate-related financial risks.

    October 21, 2021 WebPage Regulatory News
    News

    PRA Finalizes Policy for Non-Performing Exposure Securitizations

    The Prudential Regulation Authority (PRA) published the final Policy Statement PS24/21 that contains the new Non-Performing Exposures Securitization Part of the PRA Rulebook and an updated Supervisory Statement SS10/18 on the general requirements and capital framework with respect to securitizations.

    October 21, 2021 WebPage Regulatory News
    News

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    EU to Explore Potential of Establishing a Joint Cyber Unit

    The European Council adopted conclusions inviting the European Union (EU) and the member states to further develop the cybersecurity crisis management framework.

    October 19, 2021 WebPage Regulatory News
    News

    EC Sets Out Work Program for 2022

    The European Commission (EC) adopted the work program for 2022.

    October 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7598