The art of securitising CVA
New Basel counterparty credit risk capital charges are prompting banks to examine ways of shedding CVA exposures. Some dealers have started to think about securitising the risk, but structuring these transactions is no easy task, and doubts remain over the capacity of the market to absorb the risk. Matt Cameron reports
Bankers were shocked when the Basel Committee on Banking Supervision revealed a new capital charge for credit value adjustment (CVA) in a consultation paper in December 2009, arguing it was overly punitive and could lead to at least a doubling of capital needed to support these exposures (Risk February 2010, pages 19–21). Some banks immediately started to think about how they could optimise their balance sheets and reduce capital requirements – and securitisation is one avenue a number of firms
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