HOW TO USE BANK INSTRUMENTS

Bank instruments are issued from a financial institution in the name of the ordering accountholder and is delivered via bank networks such as SWIFT, Euroclear and DTCC.

 

SWIFT is the preferred means for delivery because of the large number of members internationally who belong to their network and the ability to use correspondent or intermediary banks for delivery.

The delivery of the instrument is preceded by a bank-to-bank ready, willing and able (RWA) verification and/or Pre-Advice via SWIFT MT799 confirming the bank-to-bank transfer.

The instrument is then sent via SWIFT MT760 to the beneficiary bank under the terms and conditions (verbiage) agreed between the parties including value, maturity date and provisions or specifications for payment.

Depending on the terms of the instrument, the beneficiary may have the option of borrowing money against the face value of the instrument, transferring the instrument to another beneficiary under separate arrangement(s), and/or dividing the instrument for delivery to multiple recipients.

If callable, bank instruments can be monetized for cash value under recourse and non-recourse terms. The instrument is then used as collateral or security to be “called” in the event of default by the borrowers. The beneficiary will be required to meet the lenders criteria to receive financing. Because our instruments are cash-backed, callable and issued from top-rated (investment grade) banks, the qualifications are usually much less than other forms of collateral such as property or corporate bonds.  

Bank instruments can also be discounted or sold to other beneficiaries, which requires very little scrutiny beyond the merits of the issuing bank. In other words, the instruments value (issuing bank, maturity date and terms) stand on their own. The discount or purchase price is less than rates given under lending arrangements.