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the approved counterparty without additional approval from the
credit management area so long as the credit exposure for the
transaction did not exceed the VEPL at the time the transaction
was initiated. This system enhanced the ability of FNBC to
determine whether sufficient credit limits were available to do
new transactions.
VEP transactions could also be approved deal by deal with
counterparties that had availability under existing Internal
Guidance Limits (IGLs) approving business with the customer.
FNBC’s IGL was an internal preapproved agreement on the amount of
credit capacity FNBC would make available to a customer and how
it was to be allocated among types of transactions, e.g., loans
or letters of credit. The VEPL was an allocation of part of the
IGL to financial derivative transactions with a customer.
iii. System’s Operation
FNBC’s VEP system could calculate the credit exposure for
many types of financial derivatives, including interest rate
swaps, currency swaps, commodity swaps, FRAs, interest options,
currency options, and long-term foreign exchange. The VEP system
generally employed a Monte Carlo simulation model using 10,000
potential variations of quarterly interest rates over the
remaining term of each swap and produced a distribution of 10,000
amounts representing values/credit exposures at any future
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