Maturity across the Counterparty Credit Risk (CCR) and Credit Valuation Adjustments (CVA) space varies greatly across the industry. Our recent survey provided some interesting insights as to whether banks are ready for CCR and CVA under Basel III, thanks to detailed responses from our clients and academic participants.
We found that there are clear differences of opinion between academics and practitioners particularly when it comes to Basel III readiness for CCR. The same is reflected with regards to banks having access to the right people and the right technology to effectively calculate and manage CVA.
However, from our survey responses, most banks themselves feel they do have access to the right people and talent but struggle with technology requirements, particularly with access to data. This is very much the crux of the issue facing the industry - CCR is a hybrid product and modelling it accurately requires several data sets which have not historically been combined for use regularly. Over 70 percent of the survey participants are now reviewing their credit support annex (CSA) and collateral agreement data in a bid to prepare for Basel III. Speaking from personal insight, further challenges will likely arise due to restrictions created by legacy systems, organisational alignment and computing power required.