The Basel Committee is consulting on measures to:
- ensure that all important drivers of credit valuation adjustment (CVA) risk and CVA hedges are covered in the Basel 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 Basel Committee's Fundamental review of the trading book.
The paper suggests a CVA risk framework that takes into account the market risk exposure component of CVA along with its associated hedges. It would base the regulatory capital requirement for CVA risk on exposure models that banks also use to determine their accounting CVA. In principle, it suggests an internal models approach and a standardised approach for CVA risk adapted from the revised market risk framework under the fundamental review of the trading book. A basic approach would be available to banks it would suit better. The Basel Committee asks for comments by 1 October. (Source: Basel Committee Consults on CVA Risk Framework)