CVA capital charges – the gorilla in the mist
The behaviour of CVA risk weights at US banks in 2020 hints at the impact of the Basel III endgame
Derivatives are the only asset class that faces triple taxation: every trade is simultaneously subject to risk-weighted assets (RWAs) and capital requirements for market risk, counterparty credit risk and credit valuation adjustment (CVA) risk. For years, CVA RWAs were like a gorilla in the mist – present, but barely visible. Then, in the first half of 2020, the mist cleared and the full mass
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