Elderlake Partners

05 · SA-CVA — the approval-grade method

Art 383–383b CRR

Purpose & history

A model wearing standardised clothes

SA-CVA is the compromise after IMA-CVA's abolition: banks may use their own exposure simulation and their own regulatory CVA function — risk-neutral, market-implied, own-default (DVA) excluded — but the capitalisation of its sensitivities is fully prescribed, SbM-style: delta and vega per risk class, supervisory risk weights and correlations, mCVA = 1. The prize is hedge recognition the BA-CVA cannot offer: market-risk hedges of the exposure component (rates, FX) count, not just credit hedges. The price is approval: a supervisor must accept the exposure models, the spread curves — including proxy spreads for the mostly-illiquid counterparty universe — and an active CVA desk. Regulatory CVA is deliberately not accounting CVA; reconciling the two is a standing governance exhibit.

Requirements

Approval fileExposure simulation validated (netting/collateral modelling, MPOR), CVA function documented, proxy-spread methodology (region/sector/rating mapping) defended.
SensitivitiesCVA deltas/vegas to counterparty spreads AND market factors, produced to A-SA data standards; hedges flow with opposite sign.
CVA deskMandated desk managing the risk; its hedges are the ones the calculation recognises.
Ongoing conditionsValidation cycle, P&L attribution of the CVA book, fallback to BA-CVA per portfolio on breach.

Calculations

Stylised — one counterparty spread factor CVA sensitivity to counterparty spread: s = €50k/bp → weighted WS = RW × s (RW per bucket, e.g. 5% financials IG applied to the prescribed shift) · hedge CDS sensitivity −€35k/bp enters with opposite sign → net WS on €15k/bp equivalent → bucket aggregation as in SbM → K per class; OF = m_CVA × ΣK, m_CVA = 1. The mechanics are A-SA's; only the underlying sensitivity is CVA's.
Why banks bother Same book: BA-CVA €1.68m vs SA-CVA with rates/FX hedges recognised often 30–50% lower — the exposure component, not the credit component, is where large books carry hedgeable risk. Approval is the toll.

Changes & sources

  • Art 383–383b; EBA RTS on SA-CVA (sensitivities, proxy spreads). New in kind for the EU: no CRR2 predecessor — the first CVA method requiring approval since the advanced approach died in 2017.

Independent analysis by Elderlake Partners, as at August 2026. Not legal, accounting or supervisory advice.