European capital rules could squash CVA feedback loop
The European Parliament version of CRD IV exempts trades with non-financials from Basel III's CVA capital charge - and dealers are hoping it covers sovereigns as well as corporates
Banks will not be required to hold capital against the credit value adjustment (CVA) generated by trades with non-financial counterparties under the latest raft of amendments to European proposals on bank capital – a carve-out designed to apply to trades with corporate end-users of derivatives, but which banks believe could also cover debt management offices, central banks and other sovereigns.
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