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Title 12 — Banks and BankingRelease 119-73

§4403 Bilateral netting

Title 12 › Chapter CHAPTER 45— - PAYMENT SYSTEM RISK REDUCTION › Subchapter SUBCHAPTER I— - BILATERAL AND CLEARING ORGANIZATION NETTING › § 4403

Last updated Apr 6, 2026|Official source

Summary

Netting agreements between two financial institutions must be used to end, add up, and combine their mutual payment obligations so they become one single net amount. The only money one institution may have to pay another is that net amount, and the only money one can receive is that net amount. If the net amount is zero, nothing is owed. This rule applies even if a bank has failed. It works unless limited by section 561(b)(2) of title 11 or by the laws or orders listed: section 1821(e), section 5390(c), section 4617, section 1787(c), or an order under section 78eee(b)(2) of title 15. Any security or credit support tied to those netting agreements must be enforced as written and generally cannot be stopped or reduced by other state or federal laws, except as the same listed sections and limits allow.

Full Legal Text

Title 12, §4403

Banks and Banking — Source: USLM XML via OLRC

(a)Notwithstanding any other provision of State or Federal law (other than section 1821(e) of this title, section 5390(c) of this title, section 4617 of this title, section 1787(c) of this title, or any order authorized under section 78eee(b)(2) of title 15), the covered contractual payment obligations and the covered contractual payment entitlements between any 2 financial institutions shall be terminated, liquidated, accelerated, and netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract (except as provided in section 561(b)(2) of title 11).
(b)The only obligation, if any, of a financial institution to make payment with respect to covered contractual payment obligations to another financial institution shall be equal to its net obligation to such other financial institution, and no such obligation shall exist if there is no net obligation.
(c)The only right, if any, of a financial institution to receive payments with respect to covered contractual payment entitlements from another financial institution shall be equal to its net entitlement with respect to such other financial institution, and no such right shall exist if there is no net entitlement.
(d)The net entitlement of any failed financial institution, if any, shall be paid to the failed financial institution in accordance with, and subject to the conditions of, the applicable netting contract.
(e)This section shall be given effect notwithstanding that a financial institution is a failed financial institution.
(f)The provisions of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 financial institutions shall be enforceable in accordance with their terms (except as provided in section 561(b)(2) of title 11), and shall not be stayed, avoided, or otherwise limited by any State or Federal law (other than section 1821(e) of this title, section 1787(c) of this title, and section 78eee(b)(2) of title 15).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2010—Subsec. (a). Pub. L. 111–203 inserted “section 5390(c) of this title, section 4617 of this title,” after “section 1821(e) of this title,”. 2006—Subsec. (a). Pub. L. 109–390 struck out “paragraphs (8)(E), (8)(F), and (10)(B) of” before “section 1821(e)” and “section 1787(c)” and inserted “terminated, liquidated, accelerated, and” after “institutions shall be”. Subsec. (f). Pub. L. 109–390, § 4(a)(1), struck out “paragraphs (8)(E), (8)(F), and (10)(B) of” before “section 1821(e)” and “section 1787(c)”. 2005—Subsec. (a). Pub. L. 109–8, § 906(b)(1), added subsec. (a) and struck out heading and text of former subsec. (a). Text read as follows: “Notwithstanding any other provision of law, the covered contractual payment obligations and the covered contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract.” Subsec. (f). Pub. L. 109–8, § 906(b)(2), added subsec. (f).

Statutory Notes and Related Subsidiaries

Effective Date

of 2010 AmendmentAmendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an

Effective Date

note under section 5301 of this title.

Effective Date

of 2006 AmendmentAmendment by Pub. L. 109–390 not applicable to any cases commenced under Title 11, Bankruptcy, or to appointments made under any Federal or State law, before Dec. 12, 2006, see section 7 of Pub. L. 109–390, set out as a note under section 101 of Title 11.

Effective Date

of 2005 AmendmentAmendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under Title 11, Bankruptcy, before such

Effective Date

, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of Title 11.

Reference

Citations & Metadata

Citation

12 U.S.C. § 4403

Title 12 — Banks and Banking

Last Updated

Apr 6, 2026

Release point: 119-73