The European Banking Authority (EBA) is meeting in London today and will review the Credit Valuation Adjustment (CVA) capital charge exemption for exposure non-European corporates that Europe granted its banks in 2013. The exemption has the effect of making it cheaper for banks to trade derivatives with corporates, but is at odds with the Basel III text and the practice in the US. This exemption currently applies to trades with all NFCs, European or not, but the European Capital Requirements Regulation (CRR) insists on a review for non-European counterparties specifically. NFC treasurers and CFOs should watch carefully to see whether the EBA wants to hold the status quo, penalise non-European corporates, or even follow Basel III and penalise all NFCs!
Update 8th December: The EBA went for the nuclear option on 5th December and recommended removing the CVA exemption for both European and third country NFCs. Better start lobbying the European Commission, could be money well spent!