Europe goes its own way on CVA

European legislators have opted to exempt certain derivatives trades from the CVA capital charge under Basel III. But this decision puts Europe at odds with other countries that have implemented the Basel framework in its entirety. Tom Newton reports

When a large, powerful and influential voice in the international community steps away from a key component of a global regulatory capital standard, people sit up and take notice – and they don’t get much larger than the European Union (EU). Despite being flagged for months, the decision by European legislators to allow the continent’s banks to ignore a Basel III capital charge for credit valuation adjustment (CVA) when trading with certain counterparties has surprised and dismayed some