Capital and funding
Banking operations are being rewired around XVA metrics, quantifying market incompleteness. Here Claudio Albanese, Simone Caenazzo and Stéphane Crépey focus on the cost of funding of variation margin and the cost of capital: that is, funding valuation adjustment (FVA) and capital valuation adjustment (KVA). Motivated by Basel Pillar 2, Solvency II and IFRS 4 Phase II, they propose a principled approach to accounting regulatory treatments for FVA and KVA, arguing the two are intertwined since economic capital is itself a source of funding
As explained in Albanese, Andersen & Iabichino (2015), credit valuation adjustment(CVA) and funding valuation adjustment (FVA) are adjustments to entry prices that flow into reserve capital, and they are meant to compensate shareholders for the systematic losses they incur due to counterparty defaults and funding costs. Common Equity Tier 1 Capital (CET1) is the difference between assets and liabilities minus reserve capital, and it plays the role of a further capital cushion aimed at absorbing
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Basel Committee
FRTB implementation: key insights and learnings
Duncan Cryle and Jeff Aziz of SS&C Algorithmics discuss strategic questions and key decisions facing banks as they approach FRTB implementation
Basel concession strengthens US opposition to NSFR
Lobbyists say change to gross derivatives liabilities measure shows the whole ratio is flawed
Basel’s Tsuiki: review of bank rules no free-for-all
Evaluation of new framework by Basel Committee will not be excuse for tweaking pre-agreed rules
Pulling it all together: Challenges and opportunities for banks preparing for FRTB regulation
Content provided by IBM
EU lawmakers consider extending FRTB deadline
European Commission policy expert says current deadline is too ambitious
Custodians could face higher Basel G-Sib surcharges
Data shows removal of cap on substitutability in revised methodology would hit four banks
MEP: Basel too slow to deal with clearing capital clash
Isda AGM: Swinburne criticises Basel’s lethargy on clash between leverage and clearing rules
Fears of fragmentation over Basel shadow banking rules
Step-in risk guidelines could be taken more seriously in the EU than in the US