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US$1.5bn JPM loss sparks FVA debate 

January 20, 2014
Christopher Whittall, Philip Scipio

JP Morgan has recorded a US$1.5bn loss as a result of implementing a framework for funding valuation adjustments in its derivatives and structured notes portfolios, in a further sign of the growing prominence of the controversial accounting measurement among the dealer community.

Banks have been working behind the scenes for several years on developing their own frameworks for calculating FVA – a measure used to account for the cost of bank funding in uncollateralised derivatives positions – in order to accurately price and value transactions.

Marianne Lake, JP Morgan’s CFO, noted on a call with analysts on Tuesday that there was no broad consensus so far on whether funding should be incorporated into valuation estimates for derivatives. However, she said the firm believed market practices had noticeably evolved over the course of 2013.

Read more: IFR

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