Bank bonds are bond purchased by a provider of a liquidity facility (usually a bank) in the event of a failed remarketing.
When interest rates rise, for example, bondholders may exercise a put option that requires the state or local government issuer to buy back its bonds, generally at their par value. If the bonds cannot be immediately remarketed to new investors, a bank providing a liquidity facility, such as a standby bond purchase agreement, steps in to purchase the bonds. The bonds are termed bank bonds until they are sold to other investors, or other terms of the standby bond purchase agreement are met. During the time the bonds are held by the bank, the interest rate is usually set at a higher rate.