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ISDA has consulted extensively with the industry and it is clear that, given the large number of current drivers of change, Firms are being forced to restructure their business models significantly. Firms are at differing stages of this process and require clarification as to the effect on their businesses from initiatives including:
Until these are better understood, and there is more certainty around the resulting business structures, ISDA thinks it is premature to employ a “one size fits all” approach to cover all business models and valuation methodologies at this time.
ISDA argues that regulators should delay imposing rules for the capital treatment of CVA until a consensus has emerged, as this may lead to the penalisation of approaches that price funding more conservatively and manage funding commitments better. It also believes the Industry should be given more time to devise methods for computing the impact of changes in credit spreads to CVA that would be satisfactory to the Committee.
ISDA recognises that there may be other approaches than the two it details. ISDA is committed to continuing to work with the industry to conduct a review of Industry practice in these areas, and welcomes further discussions with regulators to identify constructive solutions.