Basel CVA bombshell widens gulf with bank accounting

Dealers face conflicting incentives and capital hike after internal models are blown away

Bomb drop
Basel's bombshell: dropping the IMA has upset large banks

Back in early March, banks were eagerly getting to grips with a supervisory exercise to calculate the capital impact of new proposals laid down by the Basel Committee on Banking Supervision.

The exercise – one of the committee's perennial quantitative impact studies – was meant to work out the effect of changes to the treatment of credit valuation adjustment (CVA) risk. The changes offered banks several different routes for capitalising CVA risk, including an internal models approach (IMA-CVA)

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Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…

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