Bilateral netting in
finance and
investments is a legally enforceable arrangement between a
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
and a
counterparty
A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure of financial risk may exist. The word became widely used in the 1980s, particularly at the time of the Basel I deliberat ...
that creates a single legal obligation covering all included individual
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
s. This means that a bank’s obligation, in the event of the default or
insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet ...
of one of the parties, would be the net sum of all positive and negative fair values of contracts included in the bilateral netting arrangement.
See also
*
Set-off (law)
In law, set-off or netting are legal techniques applied between persons or businesses with mutual rights and liabilities, replacing gross positions with net positions. It permits the rights to be used to discharge the liabilities where cross cl ...
References
Banking terms
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