Even though it is called a bond, financial institution bonds are a form of insurance policy protecting financial institutions from certain types of loss. Financial institution bond coverage is required by law and works in cases of loss caused by burglary, employee dishonesty, robbery, and other crime-related circumstances. Bonds become a safety net for banks and other financial operations.
Though a financial institution is issued the bond, the bond will only reimburse a situation where the employee is considered bondable. This means there can be no dishonestly or financial crimes in the individual’s past. Additionally, all subsidiaries and companies affiliated with the financial institution need to be listed on the bond policy in order to have claims processed.
For banks and financial institutions, the most common threat is robbery. In particular, armed robbery is the number one claim filed against a financial institution bond, with wire and funds transfers and fraud coming in second. With electronic breaches becoming more commonplace, bond claims are denied if the institution failed to maintain security protocols.
Banks rely on bonds for the financial support needed to cover losses associated with theft or criminal activity. However, since not all areas of exposure or risk will be covered by the bond agreement, it may be necessary for a financial institution to invest in additional insurance coverage.