Navigating credit valuation adjustment (CVA) under CRR III: A comparative analysis of SA-CVA, BA-CVA and SI-CVA

Daniela Gellenbeck and Hermann Schulte-Mattler
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Daniela Gellenbeck: Dortmund University of Applied Sciences and Arts, Germany
Hermann Schulte-Mattler: Dortmund University of Applied Sciences and Arts, Germany

Journal of Risk Management in Financial Institutions, 2025, vol. 18, issue 4, 366-391

Abstract: The adoption of Capital Requirements Regulation (CRR) III in 2024 introduced a new regulatory architecture for credit valuation adjustment (CVA), requiring financial institutions to align capital buffers with evolving counterparty credit risk. This paper provides a comparative analysis of the standardised (SA-CVA), basic (BA-CVA) and simplified (SI-CVA) approaches, incorporating detailed numerical examples and explicit mapping to CRR III provisions. By tracing BA-CVA’s theoretical lineage to the Capital Asset Pricing Model (CAPM) and Modern Portfolio Theory (MPT), the study connects supervisory regulation with foundational financial theory. The findings highlight that while SA-CVA offers risk sensitivity and potential capital relief, BA-CVA and SI-CVA serve as accessible but conservative alternatives for less complex institutions. A dual-layered CVA strategy combining Pillar 1 minimums with internal Pillar 2 overlays is recommended to manage residual risks and wrong-way exposures effectively. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.

Keywords: credit valuation adjustment (CVA); CRR III; SA-CVA; BA-CVA; SI-CVA; Pillar 2; counterparty credit risk; wrong-way risk (WWR); capital asset pricing model (CAPM) (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2025
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