To calculate the bilateral CVA (BCVA), we account for the probability of default of both counterparties and calculate both the CVA component (cost of counterparty default) and the DVA component (benefit from own default), assuming the default events are independent.

The CVA component for Prime Bank (expected loss if ABC Bank defaults and Prime Bank survives): $CVA = EPE \times LGD_{ABC} \times PD_{ABC} \times (1 - PD_{Prime})$ CVA = \`$2`,500,000 \times (1 - 0.91) \times 0.023 \times (1 - 0.031) CVA = 2,500,000 \times 0.09 \times 0.023 \times 0.969 = \`$5`,014.58 \approx \`$5`,015

The DVA component for Prime Bank (expected gain if Prime Bank defaults and ABC Bank survives): $DVA = ENE \times LGD_{Prime} \times PD_{Prime} \times (1 - PD_{ABC})$ DVA = \`$1`,800,000 \times (1 - 0.87) \times 0.031 \times (1 - 0.023) DVA = 1,800,000 \times 0.13 \times 0.031 \times 0.977 = \`$7`,087.16 \approx \`$7`,087

The net Bilateral CVA adjustment magnitude is the difference between the DVA and CVA components: BCVA = |DVA - CVA| = \`$7`,087 - \`$5`,015 = \`$2`,072