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Basel 4: CVA Risk

Basel 4: CVA Risk

A model-based standard approach.


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The set of final standards agreed by the Basel Committee in December 2017 for credit risk, operational risk and the output floor also included revised minimum standards for the capital treatment of credit valuation adjustment (CVA) risk.

The main objectives of the revised CVA framework are (1) an improved consideration of all CVA risks including related hedges; (2) the alignment of the regulatory CVA risk calculation with the CVA calculation for accounting purposes; and (3) the alignment of regulatory requirements for CVA risk with the revised framework for market risk.

In this article, we discuss the two new approaches replacing the current standard; the Basic Approach (BA-CVA) and the Standardised Approach (SA-CVA). We analyse the impact that these will have on banks' capital, data and systems, as well as the process of implementations across the European Union.

This article is part of our Basel 4: The way ahead discussing the Basel 4 standards. To assess the full impact of these final rules, we are leveraging the insights of our global network to publish a series of articles that focus on specific areas affected by the standards. Find the latest articles online here.

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