The FRTB CVA capital charge is Basel's methodology for measuring market risk associated with CVA. Changes in any market rates (risk factors) can affect the exposure at default (EAD) on a counterparty in the trading room. This change in EAD multiplied by the counterparty's probability of default (PD) gives a measure of loss that can is converted into regulatory capital.

Basel have focused on two approaches to this, called SA-Cva and BA-Cva.


SA-CVA

Of the two methodologies, SA-CVA is the more accurate methodology requiring simulation to explicitly measure the sensitivity of each counterparty's CVA to all market risk factors, including the credit spread of the counterparty itself, the credit spread on trades with 3rd party entities, and allowing for market risk hedges.

The formula to convert the CVA sensitivities and associated hedges into a capital number is a slightly simplified version of that used for the regular FRTB standardised approach - rolling up delta and vega sensitivities that have been measured for prescribed risk vertices. Note: one simplification over SA is that curvature is not measured for CVA sensitivities.

The constraints on SA-CVA are:
1) It takes an awful lot of processing power to calculate CVA sensitivities to any degree of accuracy.
2) The bank must have an active CVA desk to even be allowed to use this methodology.


BA-CVA

The so-called basic approach piggy backs on another regulatory calculation (SA-CCR) which is the standardised approach to calculating counterparty credit risk. While less risk-sensitive than the simulation applied in SA-CVA above, the SA-CCR base at least gives an estimate of EAD which can then be multiplied by the counterparty's credit spread (or probability of default).