Understanding the Types of Financial Institution Bonds

Understanding the Types of Financial Institution Bonds

Financial Institution Bonds

Financial institutions often use bond instruments as an alternative risk transfer method in areas where insurance is less cost-effective than the protection offered by those bonds. There are four common types of financial institution bond, as well as the selection of specialty instruments tailored to the organizations that contract for them. If you’re trying to decide whether you need to buy each kind of bond, it helps to understand what they are used for.

  • Form 14 for investment banks, stock exchanges and brokerages, mutual funds, and institutions with similar exposure
  • Form 15 for mortgage and real estate investment trusts, small business finance companies, and lenders
  • Form 24 for large-scale financing companies including national banks, U.S. divisions of foreign banks, title insurance companies, and similarly structured institutions
  • Form 25 for insurance firms and reinsurance companies

Most of the time, a well-designed bond in one form is all you need, since each option is built for a completely separate class of business.

What Do These Bonds Cover?

Bonds are generally written to be robust and comprehensive, to make it easier for you to cover everything with one cost-efficient purchase instead of shopping for a patchwork coverage made up of smaller bonds that each suit one purpose. In general, their provisions take care of employee theft, errors and omissions, forgery, embezzlement, and fraudulent trading practices. When combined with the right insurance package, they help create a robust risk management plan that takes care of your company and your clients.