In what form is “Collateral” injected?

Collateral Transfer facilities are commonly, and more importantly, are wrongly referred to as Bank Guarantee ‘leasing’ as this document will explain. Despite, the injection of capital or collateral is made by the Provider to the Recipient via the Issuing Bank and the Recipient Bank, there is actually never any mention of the word ‘lease’ or ‘rent’….

In what form is Collateral injected?

Collateral Transfer facilities are commonly, and more importantly, are wrongly referred to as Bank Guarantee ‘leasing’ as this document will explain. Despite this, the injection of capital or collateral is made by the Provider to the Recipient via the Issuing Bank and the Recipient Bank, there is actually never any mention of the word ‘lease’ or ‘rent’.

Bank Instruments, often known as Letters of Guarantee, Bank Guarantees and Standby Letters of Credit (SBLC’s) sent in this way are standard bank instruments. There is no difference between an instrument remitted under a Collateral Transfer facility and an instrument issued in a more conventional manner. Any person that tells you otherwise is simply wrong.

Officially, the bank instrument (the medium) is remitted to the Recipient Bank for the benefit of the Recipient as a form of “investment” from the Provider.

This investment is evidenced by the Collateral Offering Contract and the Collateral Transfer Agreement. It should be treated in the same way as if the Provider was investing physical cash.