IIF Authors

Status: Will be live at 10/01/2015 00:00

Joint Associations' response to the CVA consultation by the Basel Committee

Thursday, October 1, 2015

The IIF, together with ISDA and GFMA, submitted a response to the Basel Committee's consultative document on the Review of the Credit Valuation Adjustment (CVA) Framework.

The objectives of the review are to (i) ensure that all important drivers of CVA risk and CVA hedges are covered in the Basel regulatory capital standard; (ii) align the capital standard with the fair value measurement of CVA employed under various accounting regimes; and (iii) ensure consistency with the proposed revisions to the market risk framework under the Basel Committee's Fundamental Review of the Trading Book (FRTB).

The industry response welcomes the decision by the Basel Committee to revisit the current CVA framework and to incorporate CVA into the revised market risk framework, i.e. within the Fundamental Review of the Trading Book (FRTB). The response expressed the industry's view that the proposed framework is a step in the right direction towards achieving the Basel Committee's goals of risk sensitivity and simplicity, subject to certain modifications. Accordingly, the response provide a number of recommendations that, if considered together, will facilitate in the swift and smooth finalization of the CVA framework review. Among the recommendations are: (1) retaining the use of the Internal Model Approach (IMA); (2) alignment of the regulatory CVA framework with the approaches that drive risk management decision; and (3) the establishment of a materiality principle to all netting sets.'