Bilateral Credit Limit

AAA

DEFINITION of '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 most well-known clearing system that uses netting as the mechanism for settlement is the Clearing House Interbank Payments System (CHIPS) in the United States.

INVESTOPEDIA EXPLAINS 'Bilateral Credit Limit'

The purpose of bilateral credit limits is to reduce the credit risk exposure of each member institution to another, and to ensure the stability of the payment system overall in case one institution fails to deliver on its obligations.

In addition to bilateral credit limits, the payment systems usually have aggregate credit limits, which limit one institution's intraday obligation to all members of the system collectively. Another large payment system, Fedwire, also uses credit limits, although its settlement is known as real-time gross settlement, rather than netting.

RELATED TERMS
  1. Netting

    Consolidating the value of two or more transactions, payments, ...
  2. Multilateral Netting

    An arrangement among multiple parties that transactions be summed, ...
  3. Clearing House

    An agency or separate corporation of a futures exchange responsible ...
  4. Real Time Gross Settlement - RTGS

    The continuous settlement of payments on an individual order ...
  5. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  6. Central Counterparty Clearing House ...

    An organization that exists in various European countries that ...
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  2. The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
    Economics

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  3. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  4. Investing

    What does CHIPS UID mean?

    CHIPS UID stands for Clearing House Interbank Payments System Universal Identifier. This is just a fancy name for an electronic clearinghouse database system, which facilitates the transfer of ...
  5. You may owe money, but you still have rights. There's a long list of things debt collectors are banned from doing to you. Know what's illegal.
    Credit & Loans

    5 Things Debt Collectors Can't Do To You

    You may owe money, but you still have rights. There's a long list of things debt collectors are banned from doing to you. Know what's illegal.
  6. Sounds like a bad horror movie, but it really could happen to you. Here's how to identify zombie debt and send collectors back to the dead-debt graveyard.
    Credit & Loans

    How To Beat Off A Zombie Debt Collector

    Sounds like a bad horror movie, but it really could happen to you. Here's how to identify zombie debt and send collectors back to the dead-debt graveyard.
  7. Understanding how the debt collection business works will give you a better chance of coming out ahead if you ever have to tangle with a collection agent.
    Credit & Loans

    Inside Secrets Of The Debt Collection Business

    Understanding how the debt collection business works will give you a better chance of coming out ahead if you ever have to tangle with a collection agent.
  8. Investigate these expat havens if you seek a developed country with low barriers for getting a permanent resident visa – sometimes even citizenship.
    Personal Finance

    5 Developed Countries That Welcome Expats

    Investigate these expat havens if you seek a developed country with low barriers for getting a permanent resident visa – sometimes even citizenship.
  9. Two years into his first term, Mexican President Enrique Peña Nieto is following through on radical campaign promises he made to Mexican citizens for sweeping multi-industry reform.
    Investing News

    Mexicans Unsure about Mexican Reforms

    Two years into his first term, Mexican President Enrique Peña Nieto is following through on radical campaign promises he made to Mexican citizens for sweeping multi-industry reform.
  10. Some countries put up very high barriers for foreigners to get citizenship
    Personal Finance

    5 Countries Where It's Hardest To Become A Citizen

    The United States is one of five countries that put up very high barriers for foreigners to get citizenship. Here's how it compares to the other four.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center