The Basel Committee on Banking Supervision (BCBS) has published a consultative document on a review of the credit valuation adjustment (CVA) framework.

The objectives of the review are to:

  • ensure that all important drivers of CVA risk and CVA hedges are covered in the Basel III regulatory capital standard;
  • align the capital standard with the fair value measurement of CVA employed under various accounting regimes; and
  • ensure consistency with the proposed revisions to the market risk framework under the BCBS’ earlier consultation paper on a review of the trading book published in December 2014.

The consultative document envisages a CVA risk framework that takes into account the market risk exposure component of CVA along with its associated hedges. The regulatory capital requirement for CVA risk would be based on exposure models that banks also use to determine their accounting CVA, subject to conditions intended to reduce potential variability due to risk-weighted asset calculations or remaining discrepancies in financial reporting practices across banks and jurisdictions.

Deadline for comments on the consultative document is 1 October 2015.

View Review of the Credit Valuation Adjustment (CVA) risk framework – consultative document, 1 July 2015