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

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    FSB and NGFS Publish Initial Findings from Climate Scenario Analyses

    The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

    November 15, 2022 WebPage Regulatory News
    News

    FSB Issues Reports on NBFI and Liquidity in Government Bonds

    The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.

    November 14, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    EU Finalizes Rules Under Crowdfunding Service Providers Regulation

    The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.

    November 08, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8596