Independent Bank Guarantee Risk Control Legal Issues

To make a guarantee with the specified property or right or the credit of the cautioner is a way of guaranteeing the creditor's rights that always effective in practice. But everything is changing, so do ways of guarantees. When the traditional way of the security interest and the traditional way of the credit guarantee can't satisfy the need of the international economical trade, because of disadvantages of their own that can't be overcome, with the thought of "efficiency first", international merchants choose to innovate ways of guarantees.Since 1970s, in the international trade activities, in order to discharge debts as soon as possible, to get financing more expediently, to reduce the cost of trade, to evade risks and so on, the parties are more restrict on services of finance guarantees. In order to adapt to the need of the development of the international trade, the independent guarantee has been established step by step along with the development of bank and commerce practices. It has become the mainstream and the trend of the international guarantee, especially the bank's independent guarantee. In the international world, the Uniform Rules for Demand Guarantees, which is based on the character of independence, has began to be accepted widely; the parties of the UN Convention on Independent Guarantees and Stand-By Letters of Credit, which was passed in 1995 and tried to make an uniform regulation by law to all kinds of guarantee ways that based on the essential legal character of independence, are increasing.Although the bank's independent guarantee is going to be uniformed by the international customs, most of countries in the world, including our country, don't have legal regulations, and different countries' cases and theories have different ideas, and there are also many disputable problems haven't been solved, and the operations also haven't been uniformed in practice. Because there's no specific legal regulation, the bank's independent guarantee faces great legal risks in practice, so the research on legal risks of the bank's independent guarantee is worthy and can guide bank's practices. Based on other people's researches, using the knowledge of law and finance, this article focuses on analyzing risks of the bank's independent guarantee and hopes to provide legal references to China's banking, who is on the way to the international finance market and faces the serious competition.Using methods of comparison and induction, focusing on countries' legal practices, combining related international customs and conventions, this article analyzes the bank's independent guarantee's legal risks and controls of them in different types, at last, based on international legal practices, it puts forward some countermeasures to deal with risks. The whole article has three parts:The first part is "Analyzing Risks of the Independent Guarantee". The independent guarantee has two forms in practice, the demand guarantee and the standby letter of credit. This part compares these two forms and focuses on analyzing their risks that the bank faces.The demand guarantee's risks are the validity risk, the credit risk and the operational risk; the standby letter of credit's risks are similar too, especially the validity risk and the operational risk.The second part is "International Practices of Controlling the Bank's Independent Guarantee Risks". At the present time, legal practices of controlling the independent guarantee's risks focus mainly on two aspects: one is the relief of the fraud claim for compensation; another is some system which aims at controlling banks' risks in the New Basel Capital Accord.In the aspect of the relief of the fraud claim for compensation, this article analyzes how the fraud claim is defined in USA and Britain's law, in international conventions and customs. It also analyzes judicial relief measures, those are the court's injunction and the asset security.In the New Basel Capital Accord, there isn't any regulation that can be adopted to control risks directly, but there are some measures about keeping the bank away from credit risks and operational risks, so they can be adopted in the bank's independent guarantee. In the New Basel Capital Accord, the External Credit Assessment Approach can be adopted to the indirect guarantee as an important index in estimating the instructing bank's degree of credit; the planar Internal Ratings-based (IRB) Approach can be adopted to estimating the applicant' degree of credit, helping the bank make rational decision and adopt some measures to keep itself away from risks. In the New Basel Capital Accord, some measures about controlling operational risks can be adopted to the independent guarantee too. Because there's only the measurement approach, which is just the regulation in principle, so it doesn't give some material suggestions on how to control operational risks.The third part is "Legal Countermeasures to Control the Bank's Independent Guarantee Risks in Our Country". Presently our country only accepts the independent guarantee restrictedly in the area of international commerce and there isn't any material regulation in the domestic law. So our county lacks the correlative law and so does the law on how to control risks. We can only find some legal regulations about controlling risks in Fraud Exception which is in the Supreme Court's Regulations on Some Problems in Hearing Disputes of Letters of Credit.According to the Contents and Times of China's Finance Industry Opening up after Joining in WTO, China has to open up its banking 5 years later after joining in WTO. Along with our country's banking opening up in 2007, in order to elevate banks' compatibilities, it is in dire need of establishing our country's independent guarantee and relative measures of controlling risks. Although our country's attitude toward the independent guarantee is limited affirmation, there is still the space for the independent guarantee to exist in the law and the legal practice. So we can learn from current international customs and protocols to establish our country's measures on controlling the independent guarantee's risks.This part puts forward some suggestions from four aspects: the choice of the form; controlling the validity risk; controlling the credit risk; controlling the operational risk.