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administrative costs or credit adjustments FNBC reported for
regulatory purposes.
C. RAP/GAAP
In some cases, RAP can differ from GAAP, with RAP/GAAP
differences referring to the differences between the reporting
required for regulatory purposes and the reporting required for
GAAP. FNBC conducted RAP/GAAP reconciliations.
IX. FNBC’s Calculation of Midmarket Value
A. FNBC’s Devon System
1. Overview
FNBC first used the Devon system in 1989. FNBC was one of
the first users of the Devon system, and Devon modified its
system specifically for FNBC. FNBC’s customization of its Devon
system changed repeatedly from 1989 through February 1993.
FNBC’s Devon system never took into account the bilateral nature
of swaps or FNBC’s relatively weak credit rating for a dealer in
the interdealer swaps market.
FNBC needed the Devon system to handle the thousands of
transactions it had on its books. FNBC used the Devon system to
calculate a midmarket value for each of its swaps. FNBC also
used its Devon system to value all of its other financial
derivatives. In the relevant years, FNBC’s Devon system used
discount factors for entities with the equivalent of AA credit
ratings. The Devon system’s use of a discount rate applicable to
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