On Risk And Control Of Bank Letter Of Guarantee In The Business

Bank Guarantee presented itself to meet the demand of the development of modern economic trade. The development of modern international economy makes guarantee indispensable because of the large trading value, long contract term and high risk difficult to predict. However, disturbed by Right To Defense and impeded by many exterior events such as force majeure, political issues, etc., the creditor who employs traditional personal guarantee or collateral more often than not have to resort to the time consuming lawsuit. The emergence of bank guarantee, which has satisfied the demand of creditor, is very helpful to protect creditor's rights and interests. It will help to activate capitals for both creditor and debtor, streamline the duties of guarantors and keep both sides from lawsuit, thus cut down on the trading cost.Nevertheless, quite a few operating staff in part of commercial banks and foreign trading companies has very limited knowledge of the roles, function, risk and operation of Bank Guarantee. Without any knowledge of the risk that Bank Guarantee might cause, some people regard it as only a paper of "document" and make a blind stab at response to the requests of foreign beneficiary, hence suffer a big accidental loss. Others, in contrast, hesitate to offer the guarantee due to the fear of its risk, and hence fail to accomplish the business trade. Both cases indicate that the related knowledge in Bank Guarantee has not been properly acknowledged and the associated risk not adequately recognized.Based on the combination of theory & practice and coexistence of case study & systematical argumentation, this paper integrated some typical cases, explored and analyzed the risks under Bank Guarantee business, summarized the experiences and lessons and proposed specific measures to control all the risks. This paper consists of three chapters as follows:Chapter One: Overview of Bank Guarantee. This chapter demonstrated the conception and juristical properties of Bank Guarantee, parties involved and their legal relations. It also classified Bank Guarantee from different perspectives and presented the international practice related to Bank Guarantee.Chapter Two: The Risks Confronted by Both Parties Involved in Bank Guarantee. This chapter is made of two sections. Section one demonstrates the risks to which the applicant is exposed, including the inherent risks of guarantee itself, risks associated with "Open Date" of period of validity, risks resulting from legal provisions and customs in different countries, extra risks to applicants because the guarantee beneficiary is a non-contracting party, risks incurred by guarantee transfer and counter-guarantee risks, etc.. Section two expounds the risks to which the guarantor is exposed, including risks from applicants, beneficiaries, guarantee provisions and counter-guarantee, etc.. The author supplemented some typical cases and combined practical operation and theory so as to methodically explain the risk factors under Bank Guarantee.Chapter Three: Control the Risk under Bank Guarantee. It includes the review and examination in the earlier stage of Bank Guarantee, later supervision and how to protect the rights of beneficiary under the improper claim, among these the prime thing is to intensify the prophase examination. Taking efficient measures in the earlier stage including research and investigation, striving for favorable considerations and carefully examining can reduce the risk in the later stage ro a great extent.