4.31 The PRA proposed to introduce a basic approach for CVA (BA-CVA), to be applied by firms that do not use the AA-CVA or do not have permission to use the advanced standardised approach (SA-CVA). Under this approach, firms could calculate CVA capital requirements using either the:

• 'reduced' BA-CVA, a simplified methodology for firms that do not hedge CVA risk; or

• 'full' BA-CVA, intended for firms that hedge the counterparty credit spread component of CVA risk.

4.32 The BA-CVA approach calculates CVA capital requirements per counterparty on a stand-alone basis, using a methodology which:

• maps the counterparty to its relevant risk category to determine the risk weight;

• takes into account the exposure and maturity of the transactions; and

• aggregates the counterparty-level CVA capital requirements using a formula that recognises a specified fixed correlation between different counterparties.