Guarantee of Performance bonds in video
The purpose of the guarantee of performance bonds (which are mandatory guarantees delivered by a bank) is to honour, in case of the failure of a bank (or, more generally, a credit institution), the guarantee commitments given by it to business professionals (builders, travel agents, insurance brokers, etc.) who are required by law to provide a guarantee to their customers.
Video: How does the guarantee of performance bonds work ?
- Guarantee of Performance bonds, how does it work?
Summary of the video:
Certain professionals, such as real estate agents, lawyers, architects and travel agents, have occasion to receive funds from their customers. For example, an advance to book a trip or build a house. These professions are regulated. They must apply for a performance bond through a bank to guarantee the proper completion of the project entrusted to them. In the event of the professional's failure or bankruptcy, the customers are then covered by the bank.
But what happens if the bank that issued the performance bond has failed? Banks authorised to issue such performance bonds must also apply for a guarantee. They must be affiliated with the performance bonds guarantee scheme managed by the FGDR. FGDR stands for Fonds de Garantie des Dépôts et de Résolution. It is the entity responsible for protecting and compensating the customers of a failed bank. If the bank fails, the performance bond guarantee scheme takes over for the bank until the professional's commitment is settled. The compensation paid by the FGDR is capped at 90% of the amount of the project, with a deductible amount of €3,000. The performance bond guarantee scheme provides a double layer of protection for regulated professions and their customers.
With the FGDR, your money is protected!