Cutting Edge introduction: the DVA debate

Banks profiting from a widening of their own credit spreads is causing more scrutiny of the debit value adjustment, with some viewing it as an accounting trick and others arguing it is a fact of life, however counter-intuitive it might seem. Laurie Carver introduces this month’s technical articles

Bank third-quarter reports are reigniting debate about credit value adjustment (CVA) and its flipside, debit value adjustment (DVA). Many commentators were aghast that banks announced profits due to the widening of their own credit spreads – starting with UBS, where a Sfr1.8 billion DVA gain nearly cancelled out the Sfr1.9 billion it lost in an alleged rogue trading incident.

Then followed the US banks – which are required to report as profits or losses their CVA and DVA on instruments that are