The art of securitising CVA

New Basel counterparty credit risk capital charges are prompting banks to examine ways of shedding CVA exposures. Some dealers have started to think about securitising the risk, but structuring these transactions is no easy task, and doubts remain over the capacity of the market to absorb the risk. Matt Cameron reports


Bankers were shocked when the Basel Committee on Banking Supervision revealed a new capital charge for credit value adjustment (CVA) in a consultation paper in December 2009, arguing it was overly punitive and could lead to at least a doubling of capital needed to support these exposures (Risk February 2010, pages 19–21). Some banks immediately started to think about how they could optimise their balance sheets and reduce capital requirements – and securitisation is one avenue a number of firms

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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