Basel III CVA charge still flawed; lacks risk sensitivity

Finalised by the Basel Committee in December, a capital charge for credit value adjustment (CVA) will have a significant impact on major derivatives dealers. But risk managers argue the revised charge is not risk-sensitive enough and fails to reflect the diversity of approaches to CVA.

Bankers breathed a sigh of relief in December, when the publication of the final text of Basel III confirmed what many already suspected – the Basel Committee on Banking Supervision had accepted its original proposals for a credit value adjustment (CVA) capital charge were too onerous and had decided to make significant changes. The revised measures have been welcomed as a vast improvement that better reflect bank CVA exposures. But many participants remain uneasy, and claim further changes are