Letter of Credit Forum

Everybody talks about the crisis: shares loose value fast and banks are unwilling to lend to each other and are ever more reluctant to lend at all.

 For the LC business I see two developments:

1) The costs for LCs are rising.

This website reports of rising costs and fees for letters of credit in the oil trade. These higher costs simply reflect a perceived higher credit risk.

2) Banks are unwilling to issue LCs to their customers.

This author tells us that vessels loaded with US grain are sitting at buyers’ ports waiting to unload because importers can’t get a letter of credit.

Even collateralized loans seem to be difficult to get. The grain has already arrived and can be easily liened, but the banks ask for more.

Bankers who drunkenly handed out cash to any poodle have become teatotallers who soberly review credit applications over and over again without finding it in themselves to approve them ("How can he be creditworthy, he approached us for a loan"). With this attitude it makes sense that banks invest in negative yield (!) treasury bills, basically giving up doing any business and promising to investors to lose money but... think of the good news: we could lose a lot more.

Soundbites are inappropriate in this situation, but one thing is clear: The life of the banking industry has been changed for decades to come.