A. General provisions

1. In the context of this document, CVA stands for credit valuation adjustment specified at a counterparty level. CVA reflects the adjustment of default risk-free prices of derivatives and securities financing transactions (SFTs) as defined in paragraphs 4 and 5 of Annex 4 of the Basel II framework due to a potential default of the counterparty. Regulatory CVA may differ from CVA used for accounting purposes as follows: (i) regulatory CVA excludes the effect of the bank's own default; (ii) several constraints reflecting best practice in accounting CVA are imposed on calculations of regulatory CVA, so some banks may find that regulatory CVA deviates from their accounting CVA. Unless explicitly specified otherwise, the term "CVA" in this document means "regulatory CVA".

2. CVA risk is defined as the risk of losses arising from changing CVA values in response to changes in counterparty credit spreads and market risk factors that drive prices of derivative transactions and SFTs.

3. The capital requirement for CVA risk must be calculated by all banks involved in covered transactions. Covered transactions include all derivatives except those transacted directly with a qualified central counterparty. Furthermore, covered transactions also include SFTs that are fair-valued by a bank for accounting purposes.

4. The CVA risk capital requirement is calculated for a bank's "CVA portfolio" on a standalone basis. The CVA portfolio includes CVA for a bank's entire portfolio of covered transactions and eligible CVA hedges.