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The Bank for International Settlements ("BIS") Basel Committee on Banking Supervision finalized several "limited" revisions to the credit valuation adjustment ("CVA") risk framework.
As previously covered, the BIS proposed amendments to its CVA risk framework in November 2019. The revisions include:
- incorporating changes made in the market risk framework in January 2019 (see previous coverage), such as reducing and capping the risk weights in the CVA standardized approach ("SA-CVA");
- establishing new "index buckets" which provide banks the ability, subject to conditions, to calculate capital requirements using credit and equity indices directly instead of looking through to the index constituents;
- excluding securities financing transactions from the scope of portfolios subject to CVA risk capital requirements where the CVA risks due to such positions are not material;
- reducing the floor for the margin period of risk for certain centrally-cleared client derivatives in the SA-CVA; and
- implementing an overall calibration adjustment of the SA-CVA.
The final CVA risk framework will go into effect on January 1, 2023.
Primary Sources
- BIS Press Release: Basel Committee publishes final revisions to the credit valuation adjustment risk framework
- BIS: Targeted Revisions to the Credit Valuation Adjustment Risk Framework
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