33.Derivatives exposures and CVA hedges enter the CVA capital calculation with associated risk weights that depend on the credit rating of the bank’s counterparties for the covered exposures, or on the credit rating of the underlying entity for hedge instruments. In the case of unrated counterparties or entities, banks should follow the approach applied by the Central Bank for credit derivatives that reference unrated entities in the CCR Standards, treating them as BBB rated unless the counterparty or entity has an elevated risk of default, in which case they should be treated as BB rated.

34.The CVA Standards follows the BCBS framework in specifying an array of risk weights that align with an external rating scale that is most similar to the one used by Standard and Poor’s. Use of this rating scale for purposes of the CVA Standards should not be viewed as an endorsement of that or any other external rating agency. Banks may use other ratings, and should map those ratings to the scale included in the Standards using the historical default experience for the various rating grades as published by the relevant external rating agencies.