Netting

In general, netting means to allow a positive and a negative value to set-off and partially or entirely cancel each other out.

In the context of credit risk, there are at least three specific types of netting:

Netting decreases credit exposure and reduces both operational and settlement risk and operational costs.

In regard to the BASEL Accords, the first set of guidelines, BASEL I, was missing guidelines on netting. BASEL II introduced netting guidelines.

In the context of pollution control, netting refers to a procedure whereby a company can create a new pollution source only if it makes equal reductions in pollution elsewhere in the company, i.e. it cannot acquire new permits from the outside.

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