European FRTB proposals spark XVA overload fears

Banks warn of overly complex revaluation process and heightened risk of backtest fails

It is no secret that the Basel Committee on Banking Supervision’s trading book rules will upend the way banks calculate capital requirements for their markets businesses. A clue is in the name: the Fundamental Review of the Trading Book.

What Europe’s market risk managers are just coming to learn, though, is how much the new regime could shake up the use of derivatives valuation adjustments by trading desks. Known collectively as XVAs, these adjustments reflect the costs and risks that banks