Implications of CVA and new Basel III CVA – Credit Value Adjustment = charge required by banks to compensate them for credit risk of Derivatives Basel III – capital requirements for unmargined derivatives have been increased dramatically by the regulators Example: BBB Issuer, Basel III requirement without margining 93bp, Basel III requirement with daily margining and a threshold of zero 4bp What is needed in Russia: –Hedge accounting concepts established already –Bankruptcy netting legislation passed already –Regulatory framework is yet to be established (FSFM, NAUFOR, rules) –Netting and margining should become standard techniques for managing the Derivative exposures and thus reducing the costs for borrowers 5
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