There are concerns in terms of the availability of data. To demonstrate this, we have included exhibits in our pdf response, which cannot be included in a text only format.
If the single proxy spread is highly correlated with the counterparty it is ok to use it for the RC CVA determination.
Two of the three attributes (sector, rating or region) should not be the only basis for applying a proxy spread. If the parent is fully liable for its subsidiary, the spread of the parent should be used in any case.
Yes, the best proxy is the government spread. Although in some cases the central government is not fully liable for the local authority, it still seems the best approximation available.
Pension funds are temporarily exempt from RC for CVA. At this point, there are no CDSs available for pension funds. Consequently, no relevant rating/sector/region curves are available. A single name proxy might be the best solution, which could be based on for example the relevant sovereign.
We would encourage the regulator to issue clear and consistent guidelines on the allowed size of non-IMM portfolios, when seeking IMM approval. If banks have IMM approval, they should have the freedom to choose between applying the standardised or the advanced CVA charge for the non-IMM portfolios. This because:
1) Non-IMM part is small and internationally aligned;
2) It is already difficult to split netting sets between IMM and non-IMM for capital purposes, but even more difficult for CVA capital;
3) Implementing a hybrid between standardised and advanced CVA can be complicated from a systems point of view and is methodologically inconsistent (by introducing two methods, a misalignment is created between the legally enforceable netting sets and the regulatory netting sets).
If EBA were to conclude that extra conditions are necessary, we strongly recommend reconsidering the percentage as specified for condition b), currently suggested at 1%. This is a very small bandwidth. We propose to apply 3% instead.
Please refer to our answer in the pdf doc, as this includes exhibits re the CDS spread of BBVA, which we took as an example.
Alignment across the board is desirable. Also alignment within the different capital frameworks is desirable. As already stated, using already developed parts of the Market Risk framework is desirable from a consistency and efficiency perspective.