-6-
2. Initial Role of Market Values in GAAP..... 65
3. SFACs..................................... 66
4. Change in Accounting Treatment............ 67
5. SFASs..................................... 68
a. SFAS No. 105......................... 69
b. SFAS No. 107......................... 69
c. SFAS No. 119......................... 70
d. SFAS No. 133......................... 71
G. Methods of Valuing Swaps....................... 71
1. Bid-Ask Method............................ 71
2. Midmarket Method.......................... 72
3. Adjusted Midmarket Method................. 72
H. Nontax Purposes for Which Dealers Value Swaps.. 73
1. Overview.................................. 73
2. Regulatory Reporting...................... 73
3. Risk Management........................... 75
4. Management Reporting...................... 75
5. Financial Reporting and Pricing........... 76
I. The G-30....................................... 76
1. Overview.................................. 76
2. G-30’s Review of Industry Practices....... 77
3. G-30 Report............................... 78
4. BC-277.................................... 79
IV. Adjustments to Midmarket Value................... 81
A. Overview....................................... 81
B. Administrative Costs Adjustment................ 82
1. Overview.................................. 82
2. Dealers’ Practice......................... 82
3. Use of the Dealer’s Own Costs............. 83
C. Adjustment for Counterparty Credit Risk........ 83
1. Overview.................................. 83
2. Common Method of Calculating Adjustment... 84
a. Counterparty Credit Rating........... 84
b. Expected Loss Factor................. 85
c. Loan Equivalency..................... 85
i. Overview...................... 85
ii. Types of Credit Exposure...... 85
A. Current Credit Exposure.... 86
B. Potential Credit Exposure.. 86
C. Expected Exposure.......... 87
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Last modified: May 25, 2011