The Office of General Counsel issued the following informal opinion on November 27, 2000, representing the position of the New York State Insurance Department.

Re: Multi-bank letters of credit

Question Presented:

Would a letter of credit be acceptable to the Department where there is standby credit support from more than one bank?


A letter of credit that provides for standby credit support from more than one bank would be acceptable, assuming that the letter of credit ("LC") complies with N.Y. Comp. Codes R. & Regs. tit. 11 Part 79 (1995) (Regulation 133).


On occasion, more than one bank is needed to issue letters of credit to support the entire ceded liability assumed by a reinsurer. There are several ways in which multiple banks could participate. The first alternative ("multiple LC") requires the reinsurer to approach several banks and arrange several separate letters of credit, each of which is issued on a stand-alone basis by the issuing banks. The second alternative ("fronted LC") involves a single letter of credit issued by a bank. The bank however sells to other banks undivided interests in its obligations under the credit. The fronting bank remains directly liable to the beneficiary for the full amount of the credit regardless of the amount participated. The beneficiary has payment rights only against the fronting bank and does not have any payment rights against the participating banks.

A third alternative ("syndicated LC") is the subject of this inquiry. Under a syndicated LC, the reinsurer enters into an agreement with a group of banks ("issuing banks") and an agent bank ("agent"), which is one of the issuing banks. Each issuing bank, including the agent, would be a qualified bank within the meaning of Section 79.1(e) of Regulation 133. (N.Y. Comp. Codes R. & Regs. tit. 11 § 79.1(e) (1995)). In all other respects, the letter of credit would comply with the requirements of Regulation 133.

A drawing by the beneficiary of a syndicated LC need be presented only to the agent, which then notifies the other issuing banks of the draw and forwards all documentation to the other banks. Each issuing bank agrees to deliver its portion of each complying draw to the agent, which in turn delivers the funds to the beneficiary. The payment to the beneficiary is typically made on the same day as the drawing, or, if the drawing is made late in the day, on the next day.

Under the syndicated LC, each issuing bank is severally, not jointly, liable to pay its specified percentage of the total dollar amount of each drawing made by the beneficiary. A schedule containing each issuing bank’s respective percentage of the total liability is set forth in the letter of credit. The failure of any issuing bank to pay its respective portion of the syndicated LC does not relieve the other banks from the obligation to fund their respective portions. Should the agent default, the beneficiary would have recourse against the other issuing banks.

The syndicated LC has several advantages over the other multi-bank LC's. It is easier and quicker for a reinsurer to arrange than multiple LCs because presentation is made to only one bank on behalf of multiple banks. The syndicated LC is also less costly to banks and beneficiaries, with lower capital charges than fronted LCs and lower administration costs than multiple LCs. There is better credit risk diversification for beneficiaries than fronted LCs, with less administrative burdens than with multiple LCs.


Assuming that the syndicated letter of credit complies with Regulation 79 in all aspects, and that the agent bank is a qualified bank that issues the syndicated LC, there is nothing in the regulation that would preclude the use of a syndicated LC as described herein. Accordingly, a syndicated LC would be acceptable to the Department.

For further information you may contact Supervising Attorney Paul A. Zuckerman at the New York City Office.