Bilateral Netting

The process of consolidating swap agreements between two parties into a single agreement. As a result, instead of each swap agreement leading to a stream of individual payments by either party, all of the swaps are netted together so that only one net payment is being made to one party based on the flows of the combined swaps.

A major reason for netting is that it adds additional security in the event of a bankruptcy to either party. By netting, in the event of bankruptcy, all of the swaps are executed instead of only the profitable ones for the company going through the bankruptcy. For example, if there was no bilateral netting, the company going into bankruptcy could collect on all in the money swaps while saying they can't make payment on the out of the money swaps due to the bankruptcy.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Bilateral Netting — is a legally enforceable arrangement between a bank and a counterparty that creates a single legal obligation covering all included individual contracts. This means that a bank’s obligation, in the event of the default or insolvency of one of the …   Wikipedia

  • bilateral netting — A legally enforceable arrangement between two parties to two or more swaps that creates a single legal obligation covering all of the individual swap contracts. This means that the size of the risk that one party is exposed to for the default or… …   Financial and business terms

  • bilateral netting — A method of reducing bank charges in which two related companies offset their receipts and payments with each other, usually monthly. In this way a single payment and receipt is made for the period instead of a number, which saves on both… …   Accounting dictionary

  • bilateral netting — 1) An agreement between two counterparties that mutual obligations will be settled by a single payment. 2) A method of reducing bank charges in which two related companies offset their receipts and payments with each other, usually monthly. In… …   Big dictionary of business and management

  • bilateral netting — /baɪˌlæt(ə)rəl netɪŋ/ noun the settlement of contracts between two banks to give a new position …   Dictionary of banking and finance

  • netting — The process of setting off matching sales and purchases against each other, especially sales and purchases of futures, options, and forward foreign exchange. This service is usually provided for an exchange or market by a clearing house. It also… …   Accounting dictionary

  • netting — The process of setting off matching sales and purchases against each other, especially sales and purchases of futures, options, and forward foreign exchange. This service is usually provided for an exchange or market by a clearing house It also… …   Big dictionary of business and management

  • Netting — This page is about the finance term. For the fabric called netting see Net (textile). In general, netting means to allow a positive value and a negative value to set off and partially or entirely cancel each other out. In the context of credit… …   Wikipedia

  • Bilateral Credit Limit — Intraday credit limits set by two institutions for use with one another, usually within a large clearing system that operates by netting amounts due to and due from institutions by other members on a daily basis. Within the banking community, the …   Investment dictionary

  • multilateral netting — 1) A method of reducing bank charges in which the subsidiaries of a group offset their receipts and payments with each other, usually monthly, resulting in a single net intercompany payment or receipt made by each subsidiary to cover the period… …   Accounting dictionary

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