Even now, we can see significant differences in the business practices of some countries.

The legal implications of providing BG can vary greatly.

For the first time, a bank guarantee appeared in American business practice in the mid-1960s, where it took the form of a so-called standby letter of credit. Later, in the early 1970s, bankers around the world promoted the wider use of BG due to the expansion of international contracts and payments.

The growing importance of bank guarantees for large projects is associated with the implementation by Western companies of investment projects in the Middle East in such industries as oil and gas production, construction of roads and airports, development of communication networks and others.

The implementation of these projects required reliable and liquid collateral.

The International Chamber of Commerce (ICC) and the United Nations Organization took on the task of achieving international consistency in the legal regulation of the bank guarantee, and they continue this work to this day.

ICC has developed two sets of unified rules.

The first was published in 1978 and is called the Uniform Rules for Contractual Guarantees (URCG).

The second set was adopted in 1992 and is called the Uniform Rules for Demand Guarantee (URDG).

The UN began work on the international harmonization of bank guarantee rules in 1990. The United Nations Commission on International Trade Law (UNCITRAL) started the development of a full-fledged international Convention, which was to receive the status of law in the states that joined it.

The first unsuccessful draft of the document was published in 1970. Subsequent work was resumed only in 1988. Then it was planned to develop a model that countries could use in the development of national legislation in the field of financial guarantees (UNCITRAL Uniform Law on International Guaranty Letters).

Subsequently, the project received the high status of an international convention of direct action “UN Convention on Independent Guarantees and Standby Letters of Credit”.

This document was signed on December 11, 1995 in New York and entered into force on January 1, 2000.

Since the processes of forming a bank guarantee as a part of civil law took place independently in different countries, guarantee documents are called differently in business practice. In Europe, the term “guarantee” is mainly used, but the terminology differs from country to country.

It should be noted that US banks were generally not entitled to issue guarantees.

Therefore, this institution was named “standby letter of credit” or “standby credit”. In the financial literature, there is a clear similarity between a bank guarantee and a standby letter of credit, but the differences between them lie in the field of practice and business terminology (BG as a mechanism of protection against improper fulfillment of obligations under the main contract).

In the United States, standby letters of credit are used not only in the context of a bank guarantee, but more broadly.

Despite the widespread use of this financial tool at the global level, the bank guarantee does not have special regulation in the national legislation of most countries (with the exception of the United States and some others).

Classification of bank guarantees

Currently, there are several classifications of guarantees, which are based on different criteria.

These classifications are widely used in various fields. Below we will look at a few examples.

The most important types of bank guarantees in the context of large projects are considered direct and indirect guarantees, which fundamentally differ in the scheme of relations between participants.

A direct guarantee implies that the principal applies to the servicing bank, which acts as a guarantor and provides a guarantee in favor of a local or foreign beneficiary.