A bank under a letter of credit transaction is always expected to become a pledgee on the goods which are the subject of the transaction by holding the related bills of lading. However, the process of creating a pledge in a letter of credit transaction is much more complicated than a mere delivery of a bill of lading, and there are many inherent factors that might impair a bank’s ability to become a pledgee on bills of lading. These factors are deeply associated with the mechanism of letters of credit and the characteristics of bills of lading. Some of these factors were identified in the authorities in decades ago; but since then, they have been overlooked by both English courts and academia; meanwhile, some have been being misunderstood for many years. These factors have existed as a risk to a bank’s security for a long time and would continue to act as a threat when paper bills of lading are replaced by electronic bills of lading (eB/Ls).This thesis aims to identify these factors and examine the impacts thereof on bank’s position under letter of credit transactions. Also, it evaluates how the usage of eB/Ls to replace paper bills of lading will change the bank’s position, especially in the occurrence of the factors mentioned above; last but not least, it proposes suggestions for lawmakers to address the risks brought by these factors, in the context of both the paper world and the digital world.Through examining each stage of pledging a bill of lading associated with the performance of the parties in a sale of goods transaction, the thesis identifies the following factors that affect (or are assumed to affect) a bank’s security under a letter of credit: first, goods have been discharged before a sellers’ tender of bills of lading; secondly, the ownership in the goods has passed to buyers before sellers’ tender of bills of lading; thirdly, sellers have not intended to transfer constructive possession to banks through their transfer of bills of lading or sellers have not indorsed their bills of lading properly (if necessary) to banks; fourthly, buyers fraudulently dispose of the pledged bills of lading, which are previously redelivered by banks against a trust receipt.From the detailed discussion on these factors, it concludes that banks’ position under letter of credit transactions is less secured than it appears and that the impact of the replacement of paper bills of lading with eB/Ls on banks’ position will vary depending on types of electronic-bills-of-lading platforms used. To deal with these factors, the thesis proposes that more certainty and clarity in the law are necessary, especially the law of bills of lading as well as the law of pledge; moreover, more preparation in legal infrastructure is required before entering the digital context.