The black art of FVA, part II: Conditioning chaos

JP Morgan’s decision to accept a $1.5 billion FVA charge when revaluing its book has put pressure on other banks to follow, but there is no consensus on even fundamental issues, such as which funding spread to use – let alone the mind-melting complexity of FVA conditioning. Matt Cameron reports

At a very select group of banks, the experiments have been going on for two years or more. Convinced that funding costs and benefits should be priced into uncollateralised swaps, boffins from finance and risk – as well as the trading floor – have been quietly trying to build a funding valuation adjustment (FVA) framework that will satisfy auditors without making each bank’s swaps too cheap, or too