What is a bank promissory note

Bank promissory notes are fixed-income securities that until now were aimed at institutional clients, but that have only recently begun to be commercialized among the general public. They have terms that vary between 3 and 18 months. They work in a similar way to the Treasury Bills, only that in the promissory notes the guarantor is a private issuer (the bank in question) and not a public one (State). Let's see what information is relevant in terms of bank promissory notes .

one

They involve more risk than deposits for example. The risk of bank promissory notes is closely related to the issuing bank, since there is no safety net in case of bankruptcy. This is not the case in the case of deposits, since we have the Deposit Guarantee Fund (FGD). Simply, in the case of bankruptcy of the bank you can lose your money and the State will not be responsible for your savings. Therefore, we must know the bank's rating to minimize the risks (where to acquire the best promissory notes).

two

However, bank promissory notes are a debt of higher quality than subordinated obligations. Thus, in the event of bankruptcy, the holders of promissory notes would be charged with those of subordinated obligations.

3

You may also have difficulty making an early cancellation of a bank promissory note . This does not happen so much with deposits, which in many cases have this option in exchange for interest or a penalty. The promissory notes, on the other hand, do not allow early cancellation, on the contrary, in order to dispose of the money, the product must be sold in the secondary market, where the law of supply prevails and its value is conditional on the low demand.

4

In short, bank promissory notes are products that at the moment have similar returns to deposits, although they have less collateral and liquidity. We will have to wait for the evolution of the market to know if they become more interesting products for investors and savers.