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VIII. Applicable Valuation Date........................214
IX. Proper Hypothetical Market.......................215
X. FNBC Implemented Its Mark-to-Market Method
Inconsistently With Section 475..................219
A. Overview.......................................219
B. Midmarket Values...............................220
C. Adjustments in General.........................221
D. Credit Adjustment..............................223
1. Need for a Credit Adjustment..............223
2. One-Month Lag in Reporting Swaps..........226
3. Credit Ratings of Both Counterparties.....227
4. Midmarket Values Reflected AA
Counterparties............................230
5. Credit Enhancements.......................231
6. Netting...................................232
7. Static or Dynamic Procedure...............233
8. Confidence Levels.........................235
9. Mirror and Partially Offsetting Swaps.....236
10. Per-Swap Adjustments......................236
E. Administrative Costs...........................237
1. Overview..................................237
2. Incremental Costs.........................238
3. Use of Own Costs..........................239
F. Other..........................................239
XI. Respondent’s Method of Accounting................240
XII. Conclusion.......................................242
XIII. Postscript–-Weight Given to Expert Testimony.....244
A. Role of the Experts............................244
B. Court’s Impression of the Experts..............246
Appendix A...................................................249
Appendix B...................................................254
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Last modified: May 25, 2011