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As $150 billion General Electric Co. grew its business and expanded its book of derivatives used for hedging foreign currency and interest-rate exposures, the number of highly rated counterparties with which it could do business remained static. That meant that GE, by 2004, was approaching credit thresholds, and expected future growth could pose problems. If GE reached the limit on the credit exposure it could have with a given derivatives dealer, it might have to cut back on trading with that counterparty to stay within its exposure cap. If the bank with which it was trading derivatives contracts reached its limit on credit exposure to GE, the bank would have to allocate more capital to back up additonal exposure–a cost it would pass on to GE. “Our existing structure could have limited GE treasury’s ability to hedge efficiently,” notes Dennis Sweeney, deputy treasurer.

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