Plans recently announced by the administration of President Barack Obama to remove speculative commodity-trading units from US banks could impact on the letter of credit (L/C) market.

Commodity traders reckon that competition for L/Cs will broaden as more independent traders are established.

Competition

Independent commodity traders currently feel at a competitive disadvantage compared with banks in some markets.

Unlike bank commodity trading units with easy access to substantial funds, new traders will have to go to the market to find L/Cs and other instruments to finance commodity trades.

Eventual legislation

If Obama's plans to force banks out of speculative activities come to fruition, all commodity traders will have to compete for capital and insurance too.

Analysts expect the plans will take more than a year to enact and that eventual legislation may not be as tough on banks as anticipated.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.