13-34 The use of LCs and SLCs may result in an FI having a higher concentration ratio than desired for a particular industry.

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LCs (Letter of Credit) and SLCs (Standby Letter of Credit) are often used in international trade to mitigate the credit risk of a buyer defaulting on payment. However, the use of LCs and SLCs can tie up a significant portion of an FI's balance sheet, affecting the concentration ratio of the institution's loan portfolio. As a result, the use of LCs and SLCs may result in an FI having a higher concentration ratio than desired for a particular industry.

13-34 the Use of LCs and SLCs May Result in an FI