On 28 November 2019, the Basel Committee on Banking Supervision (Basel Committee) launched a consultation paper setting out a set of targeted adjustments to the credit valuation adjustment (CVA) risk framework issued in December 2017.
The purpose of the adjustments is to align the 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. The Basel Committee also seeks feedback on a possible adjustment to the overall calibration of capital requirements under the CVA standardised and basic approaches.
The adjustments to the overall calibration of the CVA risk framework is through four main channels:
- revisions to the treatment of client cleared derivatives in the CVA framework in order to enhance consistency with the corresponding counterparty credit risk treatment and to incentivise central clearing;
- excluding from the scope of CVA capital requirements those securities financing transactions where the CVA loss exposures are immaterial;
- adjusting the value of the existing multiplier (MVCA) from 1.25 to [1 to 1.25]; and
- maintaining an appropriate relative calibration between the CVA standardised approach and CVA basic approach (BA-CVA), considering a revised scaling of the overall capital requirements calculated under both the reduced BA-CVA and full BA-CVA approaches.
The deadline for comments to the consultation is 25 February 2020.