Net Settlement
What It Is:
In banking, net settlement is simply the sum of the day's credits and debits.
How It Works/Example:
Let's assume XYZ Bank has the following activity today:
Outflows:
Cash withdrawals $400,000
Debit card transactions $500,000
Credit card transactions $300,000
Total $1,200,000
Inflows:
Check deposits $275,000
CD purchases $100,000
Cash deposits $125,000
Total $500,000
Net settlement = $500,000 - $1,200,000 = -$700,000
Why It Matters:
Banks send their net settlement data to each other and to Federal Reserve bank banks in order to collect or pay amounts due from or to one another. A clearinghouse typically handles the actual transaction between entities. Payments usually occur at the end of the day so as to include all transactions for the day.
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Cached on May 22, 2012, 11:47 pm