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FRM Part II · FRM Exam Part II · Basel III: Finalising Post-crisis Reforms

Under the finalised Basel III CVA framework, which transactions are generally excluded from the CVA risk capital charge?

Trades with a qualifying central counterparty are excluded from CVA capital, and securities financing transactions are excluded unless the supervisor finds the related CVA loss exposure material. Ordinary uncollateralised OTC derivatives, including unrated corporates and long maturities, remain in scope.

  1. ATransactions with corporate counterparties that are unrated
  2. BSecurities financing transactions, unless the supervisor deems CVA loss exposures material, and transactions with a qualifying central counterpartyCorrect
  3. CAll uncollateralised derivatives with sovereign counterparties
  4. DInterest rate swaps with maturities beyond five years

Explanation

Transactions with a qualifying central counterparty are excluded, as are securities financing transactions unless the supervisor determines that the bank's CVA loss exposures arising from them are material. Unrated corporate or long-dated swaps remain in scope, and sovereign derivatives are not generally exempted by being uncollateralised.

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