Credit Netting

AAA

DEFINITION of 'Credit Netting'

A system whereby the number of credit checks on financial transactions is reduced by entering into agreements that simply net all transactions. These agreements are made between large banks and other financial institutions and place all current and future transactions into one agreement, removing the need for credit checks on each transaction.

INVESTOPEDIA EXPLAINS 'Credit Netting'

Most financial transactions that deal with credit involve credit checks to ensure that the borrowing party can meet the obligation of the transactions. However, due to the active nature of large market participants, the constant checking and rechecking of credit is not only time consuming, but also has the potential to create missed opportunities. The process becomes more efficient for all parties involved if they enter into larger scale agreements.

RELATED TERMS
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  2. Default Risk

    The event in which companies or individuals will be unable to ...
  3. Open-End Credit

    A pre-approved loan between a financial institution and borrower ...
  4. Credit

    1. A contractual agreement in which a borrower receives something ...
  5. Revolving Credit

    A line of credit where the customer pays a commitment fee and ...
  6. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
RELATED FAQS
  1. Why do commercial bills have higher yields than T-bills?

    The reason that commercial bills have higher yields than T-bills is due to the varying credit quality of each bill type. ... Read Full Answer >>
  2. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
  3. What are some of the well-known no-load funds?

    The capital adequacy ratio promotes stability and efficiency of worldwide financial systems and banks. The capital to risk-weighted ... Read Full Answer >>
  4. Why do long-term care insurers require the loss of two Activities of Daily Living ...

    A merchant would use a banker's acceptance for several reasons, particularly when engaged in international trade. One of ... Read Full Answer >>
  5. How do you calculate payback period using Excel?

    Each financial institution offers similar products for its banking customers, including savings accounts, certificates of ... Read Full Answer >>
  6. What formula can I use to calculate interest on interest?

    Use the compound interest formula to determine the amount of accumulated interest on the principal amount invested or borrowed. ... Read Full Answer >>
Related Articles
  1. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  2. Savings

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  3. Economics

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  4. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  5. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  6. Personal Finance

    How The SWIFT System Works

    SWIFT has become the global standard for processing instructions and messages for payment and securities trade transactions. Investopedia explains what SWIFT is, how it works, how it makes money, ...
  7. Savings

    Review: Discover Checking Account

    Will having a Discover checking account save you money? It will save you fees.
  8. Economics

    Explaining the Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment banking business.
  9. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  10. Savings

    Expat's Guide To Bank Accounts In The Philippines

    You'll need an ACR I-Card and other documents to open a bank account in the Philippines. Be sure to read the fine print about how much money is insured.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center