VAR models need overhaul to apply CVA proxy rules, says EBA

EBA surprises industry with eleventh-hour guidance that spread simulations – not just initial levels – should account for rating, region and sector

European banks face the prospect of a painful overhaul of their value-at-risk models if they want to use the advanced approach to the credit valuation adjustment (CVA) capital charge – a requirement outlined by European Banking Authority (EBA) officials at a hearing on draft CVA rules in London yesterday, to the dismay of bank attendees.

With six months to go until the CVA charge comes into force in the European Union (EU), banks claim they do not have enough time to make the necessary changes –