CVA exposures to UK corporates jump ‘hundreds of millions’

Dash for credit protection triggered a doom loop in the CDSs of cross-currency swap counterparties

Cross-currency-kapow montage

Banks are facing big losses on uncollateralised derivatives after this week’s wild moves in gilts and sterling caused the counterparty risk and funding costs of trades with UK corporates to spike.

Much of the pain came from a jump in counterparty exposures, resulting in so-called credit valuation adjustment (CVA) losses. A derivatives trader at a US bank says dealers saw their CVA exposures to UK corporates shoot up by “hundreds of millions” during the market turmoil. An increase in CVA is

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