Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Supervisory reporting
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
No ITS / RTS on this available.
Disclose name of institution / entity:
Type of submitter:
Consultancy firm
Subject Matter:
Calculation and Application of incurred CVA per Article 273(6)

We would like to clarify how the incurred Credit Valuation Adjustments (CVA) per Article 273(6) Regulation (EU) No 575/2013 (CRR) should be applied to the COREP templates. In particular:

1. Should the CVA per Article 273 CRR be included in the calculation of Counterparty Credit Risk (CCR) Exposures? We believe it should be.

2. If the CVA is applied to CCR exposures how should it be applied, before or after any Credit Risk Mitigation (CRM)?

3. In the calculation of the CVA charge per Article 381 CRR (Meaning of credit valuation adjustment), which exposure should be used in the formula (Article 383 CRR Advanced Method):
(a) E* the fully adjusted exposure value (per Article 220 CRR) including an adjustment due to the incurred CVA; or
(b) E* the fully adjusted exposure value, but without the incurred CVA?

4. In COREP template C 07.00 where should be apply the CVA per Article 273 CRR, column 010, 030 or somewhere else?

Background on the question:

We were asked to apply the CVA per Article 273(6) of the CRR to the COREP templates and in particular C 07.00. After many discussions, we were undecided which column the CVA should be applied to and indeed how to correctly apply this CVA (before or after CRM). Then what does this mean for the exposure value that feeds the CVA per Article 381.

By way of further background/example:

One interpretation would suggest the CVA would be applied to column 010 on template C 07.00 based on the instruction for form C 07.00:
Exposure value without taking into account value adjustments and provisions, conversion factors and the effect of credit risk mitigation techniques with the following qualifications stemming from Article 111(2) of CRR:
For Derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions subject to part 3 title II chapter 6 of CRR or subject to Article 92 (3) point (f) of CRR, the original exposure shall correspond to the Exposure Value for Counterparty Credit Risk calculated according to the methods laid down in part 3 title II chapter 6 of CRR.
So, this would include the incurred CVA referred to in Article 273(6).
Likewise for the c.28 large exposures (LE2) report, the instructions for column 040 tells us:
Original exposures
These columns shall contain the original exposure, i.e. the exposure value without taking into account value adjustments and provisions, which shall be deducted in column 210.
The definition and calculation of the exposure value is set out in Articles 389 and 390 of Regulation (EU) No 575/2013. The valuation of assets and off-balance-sheet items shall be effected in accordance with the accounting framework to which the institution is subject, according to Article 24 of Regulation (EU) No 575/2013.
Article 390 says:
Calculation of the exposure value
1. Exposures arising from the items referred to in Annex II shall be calculated in accordance with one of the methods set out in Part Three, Title II, Chapter 6.
So again we come back to including the incurred CVA of Article 273.

We have also heard arguments the CVA should be applied to column 030 of COREP template C 07.00 instead of column 010. An example given by a client went as follows:
The example here presumes the CVA provisions optimisation allocation has already been carried out and then applies the component parts to C07.00.a

Original Exposure (EAD) $100
Volatility adjusted funded credit protection applied under FCCM: $ 20
Adjusted EAD pre-risk weighting process $ 80

Now assume a CVA provision of $30, (applied post-collateral optimisation), trade will calculate as follows:

Original Exposure (EAD) $100
Volatility adjusted funded credit protection applied under FCCM: $ 20
CVA provision $ 30
Adjusted EAD pre-risk weighting process $ 50

For C07.00.a, the re-presented values would have to start from the $80 of the non-CVA example and add back the $20 collateral to get the original EAD of $100. The $30 would then be included in col. 030, followed by the collateral in col. 130. The end result would then be in accordance with the calc result of $50.
So our question is where the CVA per Article 273 should be applied on the COREP reports, bearing in mind that the various validations we have on the templates – as this limits possible columns where the CVA can be applied.

Date of submission:
Published as Final Q&A:
Final Answer:

1/2) Incurred Credit Valuation Adjustments (CVA) as referred to in Article 273(6) of Regulation (EU) No 575/2013 (CRR) are considered once the exposure value for the purpose of determining counterparty credit risk has been calculated on the basis of the methods set out in Part 3, Title II, Chapter 6. When calculating the own funds requirements for counterparty credit risk, institutions should compute for each counterparty the exposure values for all netting sets with that counterparty and deduct the incurred CVA from the sum of exposure values across all netting sets with the counterparty. The outcome of this calculation should be used when credit risk mitigation is further applied, as for any other credit risk exposure, pursuant to Chapter 4 of Part 3, Title II of the CRR.

3) Regarding the computation of the CVA risk charge using the advanced approach as defined in Article 383 of the CRR, the expected exposure profile of the counterparty should be computed using the internal model method (IMM) set out in Part 3, Title II, Chapter 6, Section 6 of the CRR. The incurred CVA is disregarded for CVA risk purposes (see also section 2.2.3 p.30 of CVA report).

4) When filling out the COREP template C 07.00, exposure values for counterparty credit risk calculated according to the methods laid down in Part 3, Title II Chapter 6 of the CRR, including deduction of incurred CVA as specified in Article 273(6), should be reported in column 10. The amount of incurred CVA is reported in C 25.00 column 120. 

Final Q&A
Answer prepared by:
Answer prepared by the EBA.