Banks launch drive to crush outsized XVAs

Derivatives valuation adjustments have ballooned in size and number over recent years, collectively costing banks billions of dollars. Now, some have begun a concerted effort to minimise them – and say the exercise has proven lucrative

In the years since the financial crisis, the largest derivatives dealers have seen their balance sheets riven by valuation adjustments, also known as XVAs. As the adjustments, which consider the impact of factors such as capital, funding and counterparty risk, have gained in number and size, they have resulted in billions of dollars of losses across the industry.

But as banks have gained a better understanding of the various XVAs, they have also developed methods for dealing with the pain they