EACT response to EBA report on CVA

See the EACT response to EBA

EACT Letter to EBA on Guidelines on the Treatment of CVA risk FINAL (1)

EBA report on CVA

EBA Report on CVA

and consultation paper until feb.2016

EBA-CP-2015-21 (CP on GL on Treatment of CVA Risk under SREP)

 

the EBA is very critical of the CVA exemption for corporate end-users under the clearing thresholds and proposes to develop methodology (which it is currently doing) for covering situations of “excessive” CVA risks for banks. We think this could have serious consequences for the pricing and availability of OTC derivatives for corporates.

 

The EU Regulation on OTC derivatives (EMIR) exempts non-financial counterparties' OTC derivatives transactions entered into for hedging purposes from the requirement to centrally clear or to post margin on their transactions. The EU Regulation on bank capital (CRD IV) includes a read-across exemption stating that the transaction exempted from centra cleaning under EMIR will also be exempted under CRD IV from additional capital requirements (called Credit Valuation Adjustment, CVA) that should otherwise apply to non-centrally cleared OTC derivative transactions. This read-across exemption in CRD IV is crucial as without it, banks will have to put more capital aside for non-financial counterparties' transactions, therefore significantly increasing the costs to companies and taking away in large part the economic value of the central clearing exemption.

Since February this year, the European Banking Authority is challenging the CVA exemption granted to non-financial counterparties under CRD IV and is  planning to impose additional capital charges on banks on their CVA-exempted transactions by issuing guidelines  that banks would be obliged to comply with. These guidelines would enter into force without any scrutiny by the EU institutions and the EACT argues that it is illegitimate for the EBA to impose these measures that go against the text of the law currently in place. In order to alert the EU authorities of the damaging consequences that the EBA's action would have on companies the EACT would like to get individual companies' support for the letter addressed to the EBA and copied to the most relevant people at the Commission and the European Parliament.

consultation paper from Basel 3

basel document on cva

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