what is a bank closeout?

Answer 1

Close-out refers to the right to terminate a contract upon an event of default and to compute a termination value due to or due from, the defaulting party, generally based on the market value of the contract at that time.

The right to terminate or close-out financial market contracts is important to the stability of financial market participants in the event of an insolvency and reduces the likelihood that a single insolvency will trigger other insolvencies due to the nondefaulting counterparties' inability to control their market risk.

The right to terminate or close-out protects federally supervised financial institutions, such as insured banks, on an individual basis, and by protecting both supervised and unsupervised market participants, protects the markets from systemic problems of "domino failures." Further, absent termination and close-out rights the inability of market participants to control their market risk is likely to lead them to reduce their market risk exposure, potentially drying up market liquidity and preventing the affected markets from serving their essential risk management, credit intermediation, and capital raising functions.

Answer 2

A closeout is usually a liquidation of inventory for the purpose of quickly getting rid of it and making a profit. A bank closeout sounds like a foreclosure on a home or an auction to sell off confiscated or repossessed items which someone did not make timely payments on.

Answer 3

Hm... you can buy dollars for pennies on the dollar!