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A contract setting the common terms for a series of transactions between two parties.
The parties can negotiate a schedule and add relevant credit-support documentation. A key function is defining how transactions are handled together, including permitted netting. On termination after a specified event, eligible transaction values may be combined into one net amount. Whether these rights work as intended depends on the documents, governing law, insolvency rules and any applicable stays.
Imagine two eligible terminated transactions: one worth US$80,000 to Bank A and another worth US$50,000 to Bank B. If their enforceable agreement permits the relevant close-out netting, the simplified net amount is US$30,000 owed to Bank A. Without effective netting, gross claims could be treated separately. Collateral and close-out costs would affect the final recovery in a real case.
ECB survey finds easier wholesale credit terms, with financing costs mixed