The CVA helter skelter: European supervisors could quash exemptions

Europe’s credit valuation adjustment exemption was the outcome of a protracted legislative debate, but it may prove to be the end of a chapter, rather than the end of the story. As US banks protest and supervisors review the issue, a number of problems are emerging. Matt Cameron reports

As Europe crawled towards an agreement on its version of Basel III during the first quarter of this year, some UK banks came to what seemed a reasonable conclusion – legislators had agreed on February 27 to protect corporates, sovereigns and pension funds from the new capital charge for derivatives counterparty risk, known as credit valuation adjustment (CVA), and although the text still had to be formally approved and adopted, it seemed safe to strip the charge out of annual reports.

So they