Basel 3.1 - Bitesize
In this series of short bitesize articles, our Prudential Regulation Consulting team delves into the implications of Basel 3.1 changes on banks.
The new CVA framework aims to improve the risk sensitivity and comparability of CVA capital requirements. It attempts to achieve the following:
Exposures to sovereigns and non-financial counterparties are no longer exempt from CVA capital requirements, which could lead to an increase in CVA capital requirements for some firms.
There are a number of exemptions under the current rules for the SA-CCR regime. A number of these are changing under the final rules:
Exposure/Counterparty Type | Exemptions |
Sovereigns and NCFs | Remove existing exemption from CVA requirements |
Pension Funds | Remove current exemption from CVA capital requirements AND introduce new RW under BA-CVA and new credit spread delta in SA-CVA |
Intragroup Exemption | Retained existing exemptions and included more flexible ways to apply these. |
Client Clearing transactions | Retain exemptions from CVA capital requirements for client clearing transactions. |
Regulatory permission is required to apply for SA-CVA. Many banks are targeting SA approval due to the expectation that the capital requirements will be lower. This approach is also expected to provide better alignment with Accounting CVA.
For firms seeking the Standardised Approach CVA, they should prepare to apply for supervisory approval in a timely manner, as delays in application will impact the PRA’s turnaround time as we get closer to the implementation date.
If you have any further questions regarding Basel 3.1, please contact us via the button below and a member of our team will be in touch.
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