Characteristics of Bank Guarantees
Some important characteristics of Bank Guarantees should be noted:
Bank Guarantees are written specifically for a purpose; where an account holder will instruct his bank to issue a guarantee to another bank on behalf of their account holder.· The bank will hold adequate assets of the account holder as security for the Bank Guarantee.· Bank Guarantees cannot be transferred to third parties unknown to the banks. They cannot be bought or sold. They do not carry CUSIP or ISIN numbers and are not tradable securities. They are issued for a specific time period. Upon Expiry, Bank Guarantees are terminated, they are not traded. A Bank Guarantee has no end value and does not accumulate any investment element or maturity value.
They should not be considered as ‘investment notes’.: They should not be ‘touted’ on the open market as the issue of a Bank Guarantee is between closed parties (the Issuer and Beneficiary only). .Banks do not issue them to raise money and should not be confused with Medium Term Notes (MTNs).· The strength of a Bank Guarantee is limited to the financial standing (and rating) of the Issuing Bank.