A Guide to Financial Institution Bonds

The last financial crisis taught Americans a number of things about just how important it is to protect their assets. Everything posed a potential risk to the economy and once again the bond market is possibly threatening another shakeup in the financial sector, according to CNBC. This is why financial institutions need to prepare by getting covered against a wide range of possible exposures.

These bonds, which can include optional endorsements for social engineering fraud, electronic signatures, virtual currency, and account takeover, act as a blocker against actions of dishonest employees. These bonds are insurance that financial institutions need to look into when wanting to protect their bottom line and investments.

Types of Coverage

There is still some confusion when it comes to what exactly financial institutions insurance is. In fact, these bonds come in various shapes and sizes, hosting a range of benefits. Everything from what’s covered to how much it costs depends on what a client is looking for. In general, financial institution bonds that are designed to protect banks are called Bankers Blanket Bonds.

A separate, but similar type coverage is called a Fidelity Bond, which is usually obtained by fund managers. And sometimes this kind of coverage is called a Commercial Crime Policy, usually when it’s purchased by a non-financial institution.

What Is Covered

No matter the title of the policy, there are around the same kinds of risks attached to each one. Some risks are:

  • Employee dishonesty
  • Forgery or alteration
  • Computer fraud
  • Kidnap, ransom, or extortion
  • Various money and securities fraud
  • Counterfeiting

Insuring What’s Important

Even though these are called bonds, these coverages act more as insurance. Specifically, they protect against major losses of funds, securities or other properties typically incurred as a result of an employee who commits a dishonest act against a company. These kinds of bonds protect the institution, not the shareholders.

The Overall Purpose of Bonds

Financial institution bonds protect against fraud, helping to cover a bank’s balance sheet. Any financial institution that is involved in the provision of financial services to outside parties should consider having bond coverage.

Bonds are also a regulatory requirement in most cases, especially after the recent financial crisis. Fidelity bonds are generally a requirement for places like banks and insurance companies, but she did also be looked into by risk managers from any financial institution.

What Risks Are Not Covered

Credit insurance is the major risk that is in fact not covered by financial institution bonds.While they may sound similar, financial institution bonds and financial guarantees are not the same. Financial guarantees supplant the basic role of a bank by extending credit and assuming the credit risk of the borrower. Any kind of credit decision is one made by the bank, not an insurance company.

 

About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.

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