CVA desks avoided re-hedging as Credit Suisse teetered
As credit spreads blew out, dealers opted not to adjust rates and FX risks
Banks threw out the standard playbook for hedging the counterparty risk of interbank derivatives portfolios in the frenetic days leading up to UBS’s takeover of Credit Suisse on March 19.
In the accounting statement, credit valuation adjustment (CVA) measures the point-in-time value of uncollateralised or imperfectly collateralised derivatives counterparty credit risk. It depends on both the credit quality of the counterparty and the market risk factors of the underlying trades, such as foreign
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