The Next Chapter of FRTB: What to Know About FRTB’s New CVA Capital Framework
Now that the Fundamental Review of the Trading Book’s (FRTB) Market Risk framework is finalized, the next piece of the FRTB puzzle to be finalized is the Credit Valuation Adjustment (CVA) framework. Expected to be finished by the end of this year and considered a substantial upgrade to the existing CVA capital regulation, the new FRTB-CVA regulation aligns with the general FRTB approach of accounting for market fluctuations in exposures. This differs from Basel III’s CVA capital calculations, which only justifies fluctuations in credit spreads for counterparties when computing CVA VaR. As such, FRTB-CVA is expected to offset and reverse obstacles from the current Basel III framework.
However, no Quantitative Impact Studies (QIS) have focused specifically on the new FRTB-CVA framework, and the Basel Committee on Banking Supervision (BCBS) has recently removed the option to use an Internal Model Approach (IMA) when calculating CVA capital. So banks are rightfully wondering how exactly the FRTB-CVA framework will impact them – will CVA capital charges increase?
On April 27th featured speaker Franck Rossi FRTB Specialist and Director of Product Management at Numerix, provided a primer on the new FRTB-CVA regulations and discussed how banks will be affected now that IMA-CVA is no longer an option. He covered the current Basel III framework and the issues associated with it, and then examined key issues practitioners should be thinking about as they begin implementing the new FRTB-CVA framework.
Mr. Rossi addressed the following topics:
- Introduction to XVAs
- Bilateral trading vs Central Counterparty (CCP) clearing
- XVA measures and calculation framework
- How customers are dealing with CVA
- Basel III Current framework
- Standardized Approach (SA)
- Internal Model Method (IMM)
- Issues
- FRTB Market Risk and now FRTB-CVA
- Indicative timeline
- Approaches
- Basic Approach (BA-CVA)
- FRTB-CVA
- BA-CVA calculations
- FRTB-CVA
- Regulatory CVA
- SA-CVA
Featured Speakers
Franck Rossi
Franck Rossi is a Vice President of Product Management at Numerix, responsible for product strategy and thought leadership related to banking and derivatives regulations. He also works with clients to understand and document their requirements so Numerix can develop the required functionality in its software. Prior to joining Numerix, Mr. Rossi worked at Thomson Reuters in Product Management in Regulations, Analytics and Structured Products, and at HSBC in Interest Rate Structured Products. He holds an MSc in Finance and Mathematics from Paris-Dauphine University.
As Chief Marketing Officer and Executive Vice President of Global Marketing & Corporate Communications, James leads the company’s global marketing and corporate communications efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to clients in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Since joining Numerix in 2008, James has launched the organization’s award-winning thought leadership program, bringing to light challenges and insights from Numerix market experts. He also hosts the Numerix Video Blog, tackling the challenges pressing the derivatives markets—from regulatory issues to trading strategies.
Prior to joining Numerix, James served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, he built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. Prior to Fitch, James was a member of the communications team at Moody's Investors Service.
