risk and the institution’s own credit risk, respectively. Under market stress, changes in credit spreads and exposures can impact these adjustments. During a market stress event:

• Both the financial institution’s (FI) and its counterparty’s (CP) credit spreads widen significantly.

• The FI’s Expected Positive Exposure (EPE) to the CP increases.

• The FI’s Expected Negative Exposure (ENE) (the FI’s liability to the CP) remains unchanged.

How do the FI’s CVA and DVA change under these conditions?