2015年-EBA欧洲银行管理局_EBA_Report_on_CVA_112页_2mb

Summary of EBA Report on CVA

Core Content

The European Banking Authority (EBA) published two reports in 2015: one on Credit Valuation Adjustment (CVA) under Article 456(2) of the Capital Requirements Regulation (CRR), and another on the application of CVA charges to non-financial counterparties (NFCs) established in a third country under Article 382(5) of the CRR. These reports aim to assess the treatment of CVA risk, its scope, eligible hedges, and capital calculation methods, while also providing policy recommendations to align the EU framework with international standards.

Main Views and Key Information

1. Accounting and Internal Practices

• IFRS 13 requires institutions to reflect both the counterparty's and their own credit risk in the fair value of derivatives.
• Credit-related adjustments (CVA and DVA) are used to capture the impact of counterparty credit risk.
• The Basel CVA framework is based on market-implied inputs (e.g., CDS spreads) rather than historical estimates, which is different from accounting practices.
• Convergence in CVA practices has been observed among European banks, with most using market implied data for fair value adjustments.
• Diversity still exists in accounting practices, especially for institutions not required to compute CVA under national GAAPs.

2. Basel CVA Risk Charge

• The Basel Committee introduced the CVA risk charge to reflect the credit risk of counterparties in the capital requirements.
• CVA and the Basel II framework were introduced to address the financial crisis, where CVA losses were significant.
• The advanced CVA (A-CVA) and standardised CVA (S-CVA) methods are used to calculate capital requirements for CVA risk.
• Criticism of the Basel CVA framework includes concerns about conservatism, materiality, and market distortions.

3. EU Implementation of the Basel CVA Framework

• The EU CVA framework includes exemptions and alternative treatments (e.g., Original Exposure Method).
• Divergences exist between the Basel framework and other jurisdictions such as the US, Canada, and Switzerland.
• The EBA Regulatory Technical Standards (RTS) and Q&As provide guidance on proxy spreads, limited portfolios, and prudent valuation.

4. Consequences of the CVA Risk Charge

• Increased trading costs for clients due to the capital requirements.
• More use of collateral to mitigate CVA risk.
• Changes in modelling practices, with a focus on conservative estimates.
• Increased demand for credit derivatives as eligible hedges.
• Shift in focus from hedging CVA profit and loss (P&L) to hedging the CVA risk charge.

5. Findings and Policy Recommendations

• The CVA data collection exercise involved 32 European banks and revealed convergence in CVA practices.
• The scope of the CVA risk charge includes OTC derivatives, securities financing transactions (SFTs), and exemptions under Article 482.
• The EU exemptions are seen as a source of material CVA risk, and the EBA recommends reconsidering and possibly removing them.
• The standardised method is criticized for being too conservative and not reflecting actual risk.
• Eligible hedges are recommended to be expanded, including market risk hedges and proxy hedging.
• The EBA suggests aligning the CVA risk charge with the Fundamental Review of the Trading Book (FRTB) and revising the advanced approach to be more reflective of internal practices.

6. Application of CVA Charges to Non-Financial Counterparties in Third Countries

• The EBA recommends a coordinated approach for excluding transactions with NFCs from CVA risk charge, in line with CRR Article 382(5).
• The current exemptions based on EMIR clearing thresholds are considered inadequate.
• The EBA suggests a review of the CVA risk charge to ensure international consistency and appropriate risk capture.

Policy Recommendations

• Policy Recommendation 1: Clarify that exchange-traded derivatives are included in the CVA risk charge scope.
• Policy Recommendation 2: Harmonise the treatment of SFTs in the EU.
• Policy Recommendation 3: Reconsider and possibly remove all EU exemptions from the CVA risk charge.
• Policy Recommendation 4: Implement a coordinated monitoring approach for transactions with exempted counterparties and define excessive CVA risk for SREP.
• Policy Recommendation 5: Move the definitions of "clearing member" and "client" from Article 300 to Article 4.
• Policy Recommendation 6: Reconsider the treatment of indirect clearing in the CVA risk charge.
• Policy Recommendation 7: Allow alternative proxy spread methodologies for counterparties where credit spread data is unavailable.
• Policy Recommendation 8: Amend the Regulatory formula to reflect netting set seniority in $\mathsf{LGD}_{\mathsf{MKT}}^*$.
• Policy Recommendation 9: Clarify that a unified proxy methodology is not a CRR requirement.
• Policy Recommendation 10: Develop draft regulatory technical standards for proxy spreads and limited portfolios.
• Policy Recommendation 11: Clarify the multiplier for stressed CVA VaR when the stress period lacks data from 2008–2009.
• Policy Recommendation 12: Clarify the standardised method for computing $M_i \times EAD_i^{Total}$.
• Policy Recommendation 13: Remove the Original Exposure Method (OEM) as an alternative approach due to its lack of risk sensitivity.
• Policy Recommendation 14: Amend CRR Article 386 to clarify eligible hedges for the advanced and standardised methods.
• Policy Recommendation 15: Align the CVA framework with the FRTB, moving CVA to the market risk framework, and allowing advanced institutions to use internal models for CVA risk.
• Policy Recommendation 16: Apply the same exemption approach for NFCs established in the EU and third countries.

Conclusion

The EBA report highlights the need for a more consistent and risk-sensitive CVA framework, both within the EU and internationally. It recommends revising the scope, amending calculation methods, and expanding eligible hedges to better reflect actual CVA risk and align with the Basel framework. The EBA also calls for monitoring the impact of exempted transactions and developing clearer guidelines for internal practices and regulatory implementation.