UK banks face increased XVA burden after ring-fencing

Funding spreads to raise FVA and MVA; netting splits to hit CVA

This is the second in a two-part series looking at the impact on derivatives books of the UK’s ring-fencing regime. The first article – on swap book restructuring – was published earlier this week.

With preparations underway at UK banks to ring-fence their retail banking from the riskier investment banking business, attention is now being drawn to the “material” impact it can have on the pricing of over-the-counter derivatives trades.

Bank regulation specialists expect higher funding costs fo