Capital and funding
Quants propose KVA and FVA accounting framework based on Solvency II regulation
As explained in Albanese, Andersen & Iabichino (2015), credit valuation adjustment(CVA) and funding valuation adjustment (FVA) are adjustments to entry prices that flow into reserve capital, and they are meant to compensate shareholders for the systematic losses they incur due to counterparty defaults and funding costs. Common Equity Tier 1 Capital (CET1) is the difference between assets and liabilities minus reserve capital, and it plays the role of a further capital cushion aimed at absorbing
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