-146-
remaining 54 swaps (173 - 119), 9 were with counterparties that
did not ultimately hail from a G-10 or European Union country.
Many, if not most, of FNBC’s swaps with foreign counterparties
were with other dealers, who while not subject to U.S. bankruptcy
laws, were extremely well capitalized and were most unlikely to
default on their obligations.
4. Practicability of Accounting for Netting
If a dealer had a legally enforceable netting agreement with
a counterparty, then it would be preferable for the dealer to
calculate the credit exposure for all of the swaps with the
counterparty on an aggregate (i.e., netted) basis. This was the
recommendation of the G-30 report. During the relevant years,
FNBC was capable of measuring credit exposure on an aggregate
(netted) basis by way of the program designed for it by Hsieh in
1988.
5. Impact of the Failure To Account for Netting
FNBC’s failure to account for netting produced large and
systematic biases. FNBC’s failure to take netting into account
produced substantial large exposures that were larger than the
actual risks under the individual agreements.
52(...continued)
proceedings.
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