BA-CVA multiplies, for each counterparty, the risk weight, the exposure at default of each netting set, the effective maturity, and the regulatory discount factor, and then aggregates the results using a correlation between counterparties1. The form that reflects the effect of hedges of the counterparty's credit spread (such as single-name CDS and index CDS) is called the full BA-CVA, and the form that does not is called the reduced BA-CVA. In both forms, the amount multiplied by the discount factor of 0.65 is the CVA risk equivalent amount1.

Consider a hypothetical example with one counterparty, an SA-CCR exposure at default of 1.4 billion yen, an effective maturity of 3 years, and a risk weight of 5.0%. The CVA risk equivalent amount without hedges is about 90.5 million yen. The calculation is laid out in the article "The CVA Risk Capital Charge".

The exposure at default in BA-CVA is the value used in the counterparty credit risk (CCR) calculation. The calculation is separate from the way accounting CVA is measured, and it can be used even when CVA is not calculated for accounting. Hedge effects reflect only hedges of the counterparty's credit quality, not hedges of changes in exposure driven by market factors2.

Notes

  1. Financial Services Agency, "銀行法第十四条の二の規定に基づき、銀行がその保有する資産等に照らし自己資本の充実の状況が適当であるかどうかを判断するための基準" (Standards for determining whether a bank's capital adequacy is appropriate in light of the assets it holds, under Article 14-2 of the Banking Act, our translation; FSA Notice No. 19 of 2006, full text updated on August 24, 2026; below, "the Notice"), Articles 270-3 to 270-3-4 (pages 395–399) (in Japanese). ↩ ↩2

  2. Financial Services Agency and Bank of Japan, "「信用評価調整（CVA）リスクの最低所要自己資本」の概要" (Overview of "Minimum capital requirements for credit valuation adjustment (CVA) risk", our translation) (February 2018), section 3, "CVAリスクの見直しの概要" (Summary of the review of CVA risk) (page 4) (in Japanese). ↩