Dictionary of Banking Terms: standby letter of credit
standby letter of credit
letter of credit that represents an obligation by the issuing bank on a designated third party (the beneficiary), that is contingent on the failure of the bank's customer to perform under the terms of a contract with the beneficiary. Also called a performance bond. A standby letter of credit is most often used as a credit enhancement with the understanding that, in most cases, it will never be drawn against or funded.
