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into swaps with counterparties in a risk class lower than 5.
FNBC generally asked for collateral for counterparties in risk
class 4 or 5.
FNBC’s risk class ratings generally corresponded to the S&P
public debt ratings. Under FNBC’s risk classification system,
FNBC’s risk class ratings were listed as approximately equivalent
to the following S&P ratings:
Risk class S&P rating
1 AAA or AA
2 AA or A
3 A or BBB
4 BB or B+
5 B+ or B
The credit classes of the counterparties to the 488 swaps at
issue for 1993 were as follows:
Risk class Counterparties
1 47
2 192 or 193
3 200 or 201
4 45
5 3
FNBC’s internal risk class rating for itself was downgraded from
risk class 2 to risk class 3 at some point during the relevant
years because of bad performance.
b. Credit Procedures
FNBC used the same credit evaluation and risk classification
procedures for swaps as it used for loans and other transactions
involving the extension of credit. FNBC assigned risk class
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