Dealers push for further CVA amendments under Basel III

Adjusting the adjustments

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Counterparty risk, and in particular the treatment of credit value adjustment (CVA), was always going to be a major focus for regulators post-crisis. The Basel Committee on Banking Supervision estimates two-thirds of credit risk losses during the financial crisis were caused by CVA volatility, rather than actual defaults – a figure that led the committee to propose a methodology for calculating a CVA capital charge in December 2009.

The original proposal, which included a so-called equivalent

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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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