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?

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

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