The Bank in-turn will request that the account holder enters into some form of pledge agreement with them. This means that before the bank agree to issue a Guarantee, the Bank would require a pledge or lien over assets of the account holder to secure the Guarantee. The assets acceptable for a bank to issue a Guarantee are generally liquid assets such as cash at bank, stocks and shares and bonds. In other words, assets that can be instantly liquidated. It is increasingly less common for banks to accept less liquid assets such as real estate property, although the decision to accept the asset is ultimately that of the bank.
In essence and for example, if an account holder wanted to issue a third party with a Corporate Guarantee for US$50 Million, it would be necessary to pledge cash, stocks or bonds to his bank for a minimum of this account. It is highly unlikely that a bank would agree to issue a Guarantee on behalf of their account holder without holding assets of equal or higher value. It is only “for value received”.
Once the bank has charged, likened or blocked the assets on the account holders bank account at the bank, the same bank will issue a Guarantee in accordance with their account holders specifications.
The Issuing Bank will remit the Corporate Guarantee to the Beneficiary Bank initially by SWIFT.
Normally, the Bank may pre-advise the Beneficiary Bank by sending a SWIFT MT-799 which is only a notice outlining the Issuing Banks instructions to remit a Guarantee, or to verify information in advance of the Issue.
The Issuing Bank will then send the Corporate Guarantee also by SWIFT MT760.
Most banks will also send an original paper copy by post to the Beneficiary Bank. It is courteous for the Beneficiary Bank to remit a message or letter back to the Issuing Bank confirming its safe receipt and acknowledgement.