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

balance-sheet

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 copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here