Insolvency Close-Out Netting

7 Pages Posted: 4 Nov 2020

Date Written: September 13, 2020

Abstract

This short paper, prepared for a colloquium on the Resolution of Financially Distressed Financial Institutions, explains insolvency close-out netting and its implications. The term refers to a special type of netting of offsetting derivatives obligations that entitles a derivatives counterparty, upon the occurrence of a bankruptcy or default relating to the other party, to terminate outstanding obligations and reduce the amounts mutually owing between the parties to a net amount. Although the purported goal of that netting is to reduce systemic risk, this paper critically analyzes the extent to which that occurs.

JEL Classification: G28, F38, K23

Suggested Citation

Schwarcz, Steven L., Insolvency Close-Out Netting (September 13, 2020). Available at SSRN: https://ssrn.com/abstract=3691954 or http://dx.doi.org/10.2139/ssrn.3691954

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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