51. Banks could also legally net the settlement obligations arising out of their FX trades rather than settling them on a trade-by-trade basis. Legally binding obligation netting could directly reduce the amount at risk by lowering the number and size of payments that would otherwise be needed to settle the underlying transactions.
52. Table 3 and Figure 3 show a "worst-case" North American bank's settlement profile if it were to settle the hypothetical set of trades on a bilaterally netted basis. A comparison of Tables 1a and 3 shows that, as calculated on Friday at 11 a.m., the bank's minimum exposure would drop from US$ 105 million on a gross settlement basis to US$ 15 million on a net settlement basis. Similarly, its maximum exposure would fall from US$ 265 million to US$ 30 million. A comparison of Figures 1a and 3 shows that netting would also bring similar reductions in the "worst-case" bank's projected settlement exposures, especially over the weekend.
53. Table 4 and Figure 4 show the net settlement profile of a bank following the NYFEC's "best-case" settlement practices. A comparison with Table 2a and Figure 2a indicates that even an NYFEC "best-case" bank could lower its exposure significantly by switching the settlement of its FX trades from a gross basis to a net basis. For instance, its maximum exposure, as calculated on Friday at 11 a.m., would equal only US$ 5 million (compared with US$ 40 million on a gross basis) and would not exceed this level until Sunday evening.
54. Of course, any actual reduction in FX settlement exposures would depend on a bank's trading pattern. Active market-makers trading with each other out of a limited number of locations would be likely to have many offsetting trades that could be netted. On the other hand, relatively inactive traders or those that trade out of many different locations around the world might have less opportunity to net their FX trades.
