CVA charge will hit sovereign exposures

The Basel III credit value adjustment charge could mean banks have to apply a capital charge on some sovereign-related clients for the first time. A reluctance by these clients to post collateral means these costs could be large. By Laurie Carver

Regulators are slowly fine-tuning their approach to the posting of collateral on uncleared swaps. Five US prudential regulators published their proposals on the subject in April, which set out detailed requirements for the calculation, posting and segregation of margin on non-cleared derivatives. The US government is exempt, but foreign sovereigns will be captured by the rules if they trade with a US dealer – creating the possibility that sovereign entities will have to post collateral, in the