Basel Committee on Banking Supervision Publishes Consultation on Credit Valuation Adjustment Risk

The Basel Committee on Banking Supervision has published a consultation paper seeking feedback on its final amendments to the credit valuation adjustment risk framework set out under the Basel III standards. The paper provides a detailed description of the amendments and sets out the proposed revised standards. Responses to the consultation should be submitted by February 25, 2020.

The credit valuation adjustment risk framework is designed to manage the risk of banks incurring mark-to-market losses from deterioration in the creditworthiness of counterparties in derivatives or securities financing transactions. The framework was last revised in December 2017, partly to align it with the Basel Committee's market risk framework. The latest proposed revisions include: (i) adjustments to the standardized approach to risk weights, reflecting corresponding revisions made to the market risk framework; (ii) a new approach to calculating capital requirements for instruments with market values that are dependent upon credit and equity indices; (iii) exclusion of certain securities financing transactions from the scope of portfolios subject to CVA risk capital requirements where the CVA risks are not material; (iv) reducing the margin period of risk for certain centrally-cleared client derivatives; and (v) considering whether an adjustment to the calibration of the standardized approach to CVA risk is warranted.

Basel Committee members have confirmed that they expect to fully implement the revised CVA risk framework on January 1, 2022.

View the Basel Committee's consultation paper.

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