The rule in plain words
Under the full BA-CVA approach, the hedging benefit is equal to the capital requirements for K-reduced (0.65* K-reduced) minus the capital requirements for K-full (0.65* K-full, already calculated in row 0090)
In Credit valuation adjustment: basic approach - Decomposition of full BA-CVA capital requirements (CVA BA) (OF25.02.01.01): "For firms using the transitional described under rule 7.1(2): Total after applying the discount scalar" in column "Capital requirement" (row 0100, column 0010) must equal "K-reduced" in column "Capital requirement" (row 0010, column 0010) in Credit valuation adjustment: basic approach - Decomposition of reduced BA-CVA capital requirements (CVA BA) (OF25.02.01.02) minus 0.65 multiplied by "Total" in column "Capital requirement" (row 0090, column 0010).
The headline gives only the template and the kind of check, because the rule is too long to say in a headline. The plain words above say all of it.
This is a warning. It does not stop the return on its own, but your supervisor may ask you to explain it. It runs only when your filing indicators mark OF25.02.01.01 and OF25.02.01.02 as reported.
The cells it reads
Credit valuation adjustment: CVA exposures by approach - Capital requirements and exposure values (CVA) (OF25.01.01.03)
Row
- R0030of which, using the full BA-CVA
Column
- C0030CVA capital requirements
Credit valuation adjustment: basic approach - Decomposition of full BA-CVA capital requirements (CVA BA) (OF25.02.01.01)
Rows
- R0010K-reduced
- R0100For firms using the transitional described under rule 7.1(2): Total after applying the discount scalar
Column
- C0010Capital requirement
Which returns it applies to
Line4 Check runs it on the own funds (PRA001) return on Bank of England banking taxonomy 4.1.1. The Bank of England applies it to own funds (PRA001) returns, as a warning.
The Bank’s own words and formula
The first paragraph of the plain words above is the Bank of England’s own, word for word, from its list of validations. The second spells out its formula, with each cell named from its templates.
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The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
{t: OF25.02.01.01, r: 0100, c: 0010} = {t: OF25.02.01.02, r: 0010, c: 0010} - 0.65 * {t: OF25.02.01.01, r: 0090, c: 0010}Other rules on Credit valuation adjustment: basic approach - Decomposition of full BA-CVA capital requirements (CVA BA) (OF25.02.01.01)
Every PRA banking rule on OF25.02.01.01
Checks like this one, run at the point of submission, are the first step to real-time supervision. Line4 builds SupTech software for financial regulators that runs checks like these as each return arrives.