// definition
LC
Letter of credit
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Short definition
A conditional undertaking by a bank to pay against documents that satisfy the agreed terms. A documentary letter of credit supports a transaction; a standby letter of credit generally guarantees payment if the customer fails to perform. Its face amount is a banking commitment and need not equal a cash deposit by the customer.
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Knowledge map
Intuition
Issuing a bank undertaking and drawing on it are separate events.
Related analyses
- Emergency oil reserves: the buyer’s guaranteesA historical 2019 sales clause, kept separate from 2026 exchanges.
Primary sources
- DOE, sales provisions in effect on 1 March 2019, C.21Initial standby letter of credit for 100% of the contract value; not the terms of 2026 exchanges.