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Expected Credit Loss vs. Credit Value Adjustment: A Comparative Analysis

Author

Listed:
  • Vivien Brunel

    (Société Générale, Léonard de Vinci Pôle Universitaire, Finance Lab, France)

  • Stéphane Crépey

    (Laboratoire de mathématiques et modélisation d’Évry, France)

  • Monique Jeanblanc

    (Laboratoire de mathématiques et modélisation d’Évry, France)

Abstract

The recent publication of the IFRS 9 norms related to collective provisions for non defaulted instruments has settled a new vision to banking book portfolios. In this paper we show that the IFRS 9 provision measured through the Expected Credit Loss (ECL), inspired from a market vision on loan books, is very similar to the Credit Value Adjustment (CVA) for derivative exposures. However, even if the underlying formulas are identical, the metrics and parameters are not the same. Hence, though ECL and CVA measure similar effects, they involve different modeling challenges.

Suggested Citation

  • Vivien Brunel & Stéphane Crépey & Monique Jeanblanc, 2016. "Expected Credit Loss vs. Credit Value Adjustment: A Comparative Analysis," Bankers, Markets & Investors, ESKA Publishing, issue 141, pages 6-18, March-Apr.
    • Handle: RePEc:rbq:journl:i:141:p:6-18
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    More about this item

    Keywords

    Expected Credit Loss (ECL); IFRS 9; Credit Value Adjustment (CVA); Counterparty Risk.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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