Bank One Corporation - Page 53

                                        -139-                                         
          Risk rating          Reserve Factor                                         
          1                  0.05%                                                    
          2                  0.10                                                     
          3                  0.20                                                     
          4                  0.75                                                     
          5                  1.50                                                     
          In calculating swap credit adjustments, FNBC did not commence               
          using the new factors until the second quarter of 1993.                     
                         d.  Same Factors Applied to Loans and Swaps                  
               FNBC (and other banks) used the same loss reserve factors              
          for swaps as it used for loans.  Swaps were considered to be less           
          risky than loans by FNBC’s traders and legal department.  By                
          virtue of the ISDA form agreements, FNBC’s legal department                 
          believed that swaps allowed for protection superior to loans                
          against bankruptcy stays.  The ISDA form agreements also provided           
          for netting; i.e., as discussed infra p. 142, the right of a                
          nondefaulting party to offset transactions in the event of a                
          counterparty default.  Most of FNBC’s ISDA form agreements also             
          provided for other credit enhancements, such as cross-default and           
          other credit triggers.  FNBC also had collateral for many of its            
          swaps in addition to the credit enhancements and netting                    
          provisions.                                                                 
                         e.  FNBC’s Credit and Tenor Enhancements                     
               FNBC used credit and tenor enhancements to reduce credit               
          risk on its swaps.  In the case of at least some counterparties             
          considered by FNBC to be risks, FNBC reduced the tenor limit for            
          swaps with that counterparty, required that the counterparty                





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Last modified: May 25, 2011