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statements, its tax returns, and its internal monthly management
reports. Petitioner contends that each element of the
methodology was consistent with GAAP and the recommendations of
the leading authorities, and that FNBC’s approach was in the
mainstream of industry practice for large dealers during the
relevant years. Petitioner observes that: (1) The G-30 report
recommends that midmarket values should be adjusted for credit
risk, administrative cost, and other items and (2) the OCC
(through BC-277) required that all national banks adjust their
values for credit, administrative costs, and other items.
We disagree with petitioner that FNBC’s methodology in
valuing its swaps has been recognized by nearly everyone as the
best approach for valuing financial derivatives. In support of
this argument, petitioner relies mainly (if not solely) on its
experts’ opinions that FNBC computed its adjustments in the same
manner as did the rest of the industry. We are unpersuaded by
these opinions. In the main, they conflict with the credible
evidence in the record including, for example, the testimony of
Duffie to the effect that (1) the industry did not compute its
adjustments in any one manner and (2) FNBC’s use of an 80-percent
confidence level as one data point was the only time that he had
heard of such an approach. Duffie also testified that FNBC’s
practices either were inconsistent with industry practice or were
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