Q&As

What is the banker’s right of set-off?

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Produced in partnership with Richard Hanke of 3 Verulam Buildings (3VB)
Published on LexisPSL on 21/07/2016

The following Banking & Finance Q&A produced in partnership with Richard Hanke of 3 Verulam Buildings (3VB) provides comprehensive and up to date legal information covering:

  • What is the banker’s right of set-off?

What is the banker’s right of set-off?

The banker’s right of set-off refers to the right of a bank to combine two or more of a customer’s accounts held with that bank, where one account has a credit balance and the other has a debit balance, in order to give a net position. There is a debate as to whether the right is a standalone legal principle, or a reflection of the accounting reality of the net liabilities between the customer and their bank. Notwithstanding this debate, the right is subject to a number of well-established limitations.

First, although the right is applicable to accounts held at different branches of the same bank, the customer must hold both accounts in the same capacity. Thus, a bank cannot set-off a debt owed by the customer personally against a credit balance if the bank is aware that the customer holds the account in credit as a trustee. The opposite side of this principle, however, is that if the bank has clear and indisputable evidence that two accounts are beneficially held by the same customer it is entitled to combine them even if they are held in different names (see Saudi Arabian Monetary Authority Agency v Dresdner Bank AG).

Second,

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