How do the banks involved in a confirmed letter of credit transaction function?
The bank that issues a confirmed letter of credit (the issuing bank) assumes the role of the foreign buyer, whereas the bank that confirms the letter of credit (confirming bank) assumes the role of the foreign issuing bank. By functioning in this manner, the issuing bank effectively eliminates payment risk associated with the foreign buyer whereas the confirming bank effectively eliminates payment risk associated with the issuing bank.
