June 21, 2017

EBA published the final draft regulatory technical standards on credit valuation adjustment (CVA) proxy spread. These regulatory standards propose limited amendments to the Commission Delegated Regulation (EU) No 526/2014 for determining proxy spread and limited smaller portfolios for CVA risk, based on two policy recommendations in the CVA report of EBA, which was published on February 25, 2015.

These regulatory standards aim to further specify cases where alternative approaches can be used to identify an appropriate proxy spread and LGD MKT, which is the market implied loss given default (LGD) of the counterparty. The amendments follow on from policy recommendations No. 7 and 8 of the CVA report, which showed persistent difficulties in determining appropriate proxy spreads and LGD MKT for a large number of counterparties. Through the proposed amendments, EBA expects to ensure a more adequate calculation of own funds requirements for CVA risk, thus partially remedying the misalignment of the prudential CVA risk framework and the internal management of CVA risk. These regulatory technical standards have been developed according to Article 383(7) of Capital Requirements Regulation or CRR (Regulation (EU) No 575/2013).

Related Links

Final Draft Standards on CVA Proxy Spread (PDF)

CVA Report (PDF)

Commission Delegated Regulation (EU) No 526/2014

Keywords: Europe, EBA, Banking, LGD, CVA, Regulatory Technical Standards

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