The European Banking Authority (EBA) launched today a public consultation on draft amending Regulatory Technical Standards (RTS) on credit valuation adjustment (CVA) proxy spread. These RTS propose limited amendments to Commission’s Delegated Regulation (EU) No 526/2014 based on two policy recommendations contained in the EBA’s CVA report published on 25 February 2015. Through the proposed amendments the EBA expects to ensure a more adequate calculation of own funds requirements for CVA risk. The consultation runs until 06 July 2016.
On 20 December 2013, the EBA published the RTS on CVA risk to determine a proxy spread and specify a limited number of smaller portfolios the Capital Requirements Regulation (CRR).
In the CVA report published on 25 February 2015, the EBA re-assessed the relevance of the RTS provisions, in particular based on a CVA data collection exercise involving 32 banks from 11 jurisdictions. The CVA report showed persistent difficulties in determining appropriate proxy spreads and LGDMKT for a large number of counter-parties. Against this backdrop, policy recommendations 7 and 8 of the CVA report concluded that the RTS should be amended to address the difficulties associated with the determination of proxy spreads for large numbers of counter-parties, for which spreads may never be observed on markets, as well as issues linked with LGDMKT.
Therefore, the present amending RTS propose limited amendments to Delegated Regulation (EU) No 526/2014 that aim at further specifying cases where alternative approaches can be used for the purposes of identifying an appropriate proxy spread and LGDMKT. The proposed amendments are expected to lead to a more adequate calculation of own funds requirements for CVA risk, including in some cases a reduction of own funds requirements for CVA risk, thus partially remedying the over-estimation of current own funds requirements for counterparties in the scope of the CVA risk charge in the EU.
The deadline for responses to this consultation is 06 July 2016.
The EBA statement and the consultation paper can be found here.