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
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