RBS 2009 Annual Report Download - page 195

Business review
Risk, capital and liquidity management
193RBS Group Annual Report and Accounts 2009
Credit valuation adjustments (CVA)
CVA represent an estimate of the adjustment to arrive at fair value that a
market participant would make to incorporate the credit risk inherent in
counterparty derivative exposures. The Group makes such credit
adjustments to derivative exposures it has to counterparties, as well as
debit valuation adjustments (DVA) to liabilities issued by the Group. The
Group’s methodology used for deriving DVA is different to that used for
CVA and is discussed within Note 11 Financial instruments – own credit
on page 281.
The Group has purchased protection from monoline insurers
(‘monolines’), credit derivative product companies (CDPCs) and other
counterparties. The Group makes CVAs to exposures it has to these
counterparties. The CVAs at 31 December 2009 are set out below.
2009 2008 2007
£m £m £m
Monoline insurers 3,796 5,988 862
CDPCs 499 1,311 44
Other counterparties 1,588 1,738 263
Total CVA adjustments 5,883 9,037 1,169
Key points
•During 2009, there was a significant reduction in the level of CVA held against exposures to monoline insurers and CDPCs, primarily driven by a
reduction in the gross exposures to these counterparties due to a combination of restructuring certain trades and higher prices of underlying
reference instruments.
•The reduction in CVA held against exposures to other counterparties was primarily driven by a reduction in counterparty risk due to the tightening
of credit spreads.