Corporate deposits used as CVA mitigant

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Banks are looking at ways of mitigating the credit valuation adjustment (CVA) charge under Basel III - and one method is to use corporate deposits as collateral on derivatives trades, say market participants.

The new CVA charge will come into force from January 2013, but many banks are pricing it into derivatives trades now. However, the charge is particularly onerous for longer-dated trades with counterparties such as corporates, which historically have not posted collateral.

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