Bank One Corporation - Page 46

                                        -132-                                         
          date.47  In order to translate this plethora of numbers                     
          characterizing the exposure into a single number, FNBC selected             
          and applied an 80-percent confidence level during the relevant              
          years to ascertain a maximum credit exposure through time for               
          this confidence level.48  The CEM amount was useful for risk                
          management purposes in that it alerted management when a                    
          portfolio’s potential exposure was increasing, it identified the            
          portions of the portfolio with the greatest exposure, and it                
          allowed management to identify the most potentially dangerous               
          swaps for special attention.  The CEM amount was not an accurate            
          price of credit risk and was inappropriate for pricing or                   
          valuation.                                                                  
               FNBC’s VEP system overstated FNBC’s credit exposure in that            
          the system did not consider collateral and other security or the            
          offsetting losses with the same counterparties based on legally             
          enforceable termination and netting rights.  FNBC reported this             
          deficiency in its 1993 annual report.  That report acknowledged             
          that credit exposure amounts might be overstated since those                
          amounts did not take into account collateral, other security, or            
          termination and netting rights.                                             


          47 The important characteristics of the distribution of                     
          possible outcomes of some swaps could be calculated directly and            
          did not require a Monte Carlo simulation.                                   
          48 Initially, FNBC calculated the CEM amounts at a                          
          95-percent confidence level but reduced that level to 80 percent            
          in 1989.                                                                    




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