Regulatory Alerts2025-09-11
Capital Adequacy Requirements (CAR) Chapter 8 – Credit Valuation Adjustment (CVA) Risk
The Office of the Superintendent of Financial Institutions (OSFI) mandates that Canadian banks, holding companies, and trust and loan companies calculate capital for Credit Valuation Adjustment (CVA) risk using either the Basic Approach (BA-CVA) or Standardized Approach (SA-CVA). The framework specifies eligible counterparty credit spread hedges, establishes a $150 billion notional materiality threshold for derivatives, and prescribes supervisory risk weights, correlation parameters, and calculation formulas to ensure adequate capital against counterparty default exposures. Institutions must compute these requirements on a standalone basis for their CVA portfolios, with optional carve-outs and maturity adjustment caps available to approved entities.