Australia

Details

  • Service: Topics, Financial Services Regulation
  • Industry: Financial Services, Banking
  • Type: White paper
  • Date: 19/07/2013

Ian Pollari

Ian Pollari
National Sector Leader, Banking

+61 2 9335 8408

ipollari@kpmg.com.au

Funding Valuation Adjustment: Putting funding into the equation 

Until recently, the methods used to value interest rate swaps had been stable for decades. However, the last couple of years has seen unprecedented evolution. There has been much discussion on the possible inclusion of a funding spread over Libor within the approach adopted to value derivatives.

This paper from KPMG International looks at Funding Valuation Adjustments (FVA) and offers nine propositions on some of the key areas being discussed.

 

As well as valuation, the paper touches on aspects of accounting, regulatory capital and an institution's internal liquidity management.

 

Key insights

  • There are unprecedented changes to the discounting rates used to value collateralised derivatives (OIS).
  • Methods used to reflect counterparty credit (CVA) and own credit (DVA) are also experiencing changes.
  • The latest and most complicated potential change which is now looming is funding valuation adjustment (FVA).
  • A fundamental change in the approach to the valuation of uncollateralised derivatives.
 

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