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Contractual offset of payables against receivables to reduce credit exposure to a counterparty. Netting swap payments in bankruptcy, for example, reduces credit exposure to the net obligation of a counterparty. Netting in bankruptcy or insolvency may not be enforceable in all jurisdictions, but the United States federal bankruptcy code and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) are designed to permit netting among United States-based counterparties. Other sovereign jurisdictions are generally following this example to protect the ability of their financial intermediaries to compete in international markets. Also called Aggregation, Close-Out Netting, Right of Offset, Right of Setoff. See also Bilateral Netting, Legal Right of Setoff, Offset (2), Payment Netting.
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