Dealers eye model change to cure CVA capital headache

With hopes of EU regulatory carve-out fading, some banks are taking matters into their own hands

When the coronavirus hit, banks blamed the huge surge in market risk capital charges on the hedging of counterparty credit risk from uncollateralised derivatives.

They’ve lobbied since for a regulatory carve-out for hedges of the interest rate and foreign exchange elements of credit valuation adjustment (CVA) from market risk capital requirements, which they argue unfairly penalise prudent risk management. But with European regulators yet to budge, some dealers have started overhauling their