A recent survey has found that letter of credit (L/C) costs have risen since the 2008 financial crisis.
The survey conducted by the Swiss-based Joint Forum examined credit risk management at banking, securities, and insurance companies worldwide.
Overall, the survey finds that credit risk management has improved since the financial crisis seven years ago and the ensuing Eurozone sovereign debt crisis.
But rising L/C costs are one of several negative aspects of credit risk management that have developed in the last few years.
Researchers found that the crises triggered fundamental changes in market behaviour and regulatory requirements, which are “shifting the locus of financial stability risks from advanced economies to emerging markets, from banks to shadow banks, and from solvency to market liquidity risks.”
Respondents to the survey reported more stress testing, a search for more sophisticated credit risk approaches, increased attention to counterparty, industry and country risk and less reliance on external credit rating agencies.
Costs associated with obtaining L/Cs have increased as a result of creditworthiness concerns the survey said.
The Joint Forum, an international group of regulators that deals with issues common to all three financial services industries, surveyed 15 supervisors and 23 banking, securities, and insurance companies in Europe, North America, Asia, and Africa.
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