Gross Negative Fair Value (GNFV)

Definition of Gross Negative Fair Value (GNFV)

Gross negative fair value (GNFV) is an assessment of the total fair value of a bank's contracts wherein the bank currently has a balance outstanding to the counterparty. Gross negative fair value addresses the maximum amount that would be lost by all counterparties on the off chance that the bank defaulted; it is additionally assumed that bilateral contracts are not netted and that different gatherings don't have claims on the bank's assets.

Figuring out Gross Negative Fair Value (GNFV)

Credit risks emerge when banks trade derivatives with each other. The volatility of underlying assets - interest rates, currencies, commodities, equities, and so on - as well as maturity and liquidity of derivatives contracts and the creditworthiness of trading counterparties are the key factors that influence the amount of credit risk . On its books at some random point in time, a bank will have a total derivatives position of either gross positive fair value (GPFV) or gross negative fair value, the former demonstrating that the bank conveys derivatives receivable and the last option showing that it has derivatives payable. GNFV is a guess of the total credit risk that the bank opens to its counterparties assuming it defaulted on its derivatives contracts.

Utilizing "gross" numbers is a method for estimating maximum loss risk, yet in practice, in light of netting arrangements among banks, the amount of potential loss is less. A bilateral netting agreement is an arrangement by which all receivables and payables are offset in the event of a default or insolvency of one of the counterparties. The Office of the Comptroller of the Currency (OCC) tracks derivatives activities of banks and distributes quarterly reports. The OCC reports GNFV as well as GPFV, yet it's the preferred measurement in assessing credit risk is net current credit exposure (NCCE), which is equivalent to the net amount owed to banks on the off chance that all derivatives contracts were promptly liquidated.