Non-CDS Instruments Dominate Bank’s €59.4bn CVA Hedges

ING Bank reported €59.4 billion ($70.1 billion) in notional hedges for credit valuation adjustment (CVA) risk at the end of 2025, significantly exceeding the levels held by its European Union peers and reflecting a strategic emphasis on non-credit-spread instruments to manage counterparty credit risk.

The bank disclosed that its CVA hedging portfolio consisted of €2.9 billion in single-name credit default swaps (CDSs), €4 billion in index CDSs, and €52.6 billion in other derivatives, with the overwhelming majority of the hedge composition falling outside traditional credit-spread products.

This approach distinguishes ING from other EU banks, as its use of non-credit-spread instruments for CVA hedging is notably more pronounced than that of its regional counterparts, according to the bank’s end-2025 risk disclosures.

Context on CVA and Hedging Practices

Credit valuation adjustment (CVA) represents the market value of counterparty credit risk in derivative transactions, and banks are required to hold capital against this risk under frameworks such as Basel III. Hedging CVA exposure involves using financial instruments to offset potential losses from deteriorating counterparty credit quality.

While credit default swaps are a common tool for hedging credit spread risk, ING’s strategy relies heavily on alternative derivatives, suggesting a broader approach to managing counterparty risk that may include interest rate, foreign exchange, or other market risk factors influencing CVA.

Regulatory and Market Implications

The scale of ING’s CVA hedging activity highlights the ongoing importance of counterparty risk management in the banking sector, particularly as regulators continue to refine rules around valuation adjustments and market risk under initiatives such as the Fundamental Review of the Trading Book (FRTB).

Broader Industry Trends

• ING’s disclosure reflects heightened focus among European banks on managing XVA (valuation adjustment) risks, which include CVA, DVA (debt valuation adjustment), and FVA (funding valuation adjustment).
• The use of non-traditional hedging instruments may indicate efforts to balance effectiveness with regulatory capital efficiency under evolving rules.
• Market participants continue to monitor how banks adapt their hedging strategies in response to changes in counterparty risk profiles and regulatory expectations.

ING’s end-2025 CVA hedge positioning underscores its proactive stance in managing complex derivatives exposures, setting a benchmark for scale and instrument diversity among EU financial institutions.