The Impact of Globalization on Bank Guarantees: Changing Role of Letter of Guarantee in Banking
It is proved that traditional guarantees such as mortgaging or accessory guarantor could not reduce the risk in international trade and might put the business life in danger. In order to overcome such obstacles and secure the international transactions, b
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The Impact of Globalization on Bank Guarantees: Changing Role of Letter of Guarantee in Banking Kemale Aslanova
Abstract It is proved that traditional guarantees such as mortgaging or accessory guarantor could not reduce the risk in international trade and might put the business life in danger. In order to overcome such obstacles and secure the international transactions, bank guarantees have been designed and widely used. As a form of non-cash credit bank, a letter of guarantee ensures that the bank undertakes to meet losses arising—at the request of one of the parties—if the other party does not fulfill its requirement, debt in accordance with the contract or fails to perform as it should be. In the international level there have been several attempts to unify the rules on bank guarantees. The ‘‘United Nations (UN) Convention on Independent Guarantees and Standby Letters of Credit’’ was adopted and entered into force in 2000. Moreover, The International Chamber of Commerce accepted ‘‘Uniform Rules regarding the Guarantees at Request (URGR) Publish no.758/2010’’ which can be applied in the international trade as well. Four views have been developed on the legal nature of bank guarantees by the doctrine and court cases: ‘‘bail’’, ‘‘guarantee’’, ‘‘sui generis contract’’ and ‘‘mixed quality’’.
15.1 Introduction In banking, credit activities are classified under two headings: Cash loans are given as money in exchange of interest and commission. Non-cash loans types of credit provides bank to be guarantor in exchange of commission. It does not matter whether they are considered as a guarantee contract or a surety agreement; letters of guarantee by the banks are considered as the non-cash credit, which turn to cash on the first request or when the certain conditions are met (Tasdelen 2002). During the
K. Aslanova (&) Department of Justice, Beykent University, Istanbul, Turkey e-mail: [email protected]
H. Dincer and Ü. Hacioglu (eds.), Globalization of Financial Institutions, DOI: 10.1007/978-3-319-01125-7_15, Springer International Publishing Switzerland 2014
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establishment of a business relationship, the parties doubt either other party fulfills the requirement committed or not fulfill the requirement as it required. Especially when the parties do not know each other and there are distances between the parties, it might be difficult to trade. For this reason, the parties may demand guarantees from each other. As a rule, the creditor does not have to provide any collateral to the debtor. A debtor cannot force the debtor to provide collateral unless there is an obligation arising from a law or an agreement. In these cases, a debtor either can find a reputable warrant or mortgage or a third person can be a guarantor and promise to pay the debt under certain circumstances (Kuntalp 1995). The term of collateral, their types and liability arising from them (Reha Poroy’a Armag˘an. Istanbul. pp. 266–267). Bank guarantees or letters of guarantee have emerged to secure the business relations
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