In the 1960s, I examined the International Department of a major bank. When I requested the file on a certain credit, I was presented with a stack, one foot high, which I was not about to go through.

One of the department officers suggested that I should not waste any time with this credit as the loan was in process of charge off.

It was a 20-year-old line of credit extended to a copra broker, who had gone out of business, leaving a balance outstanding of about $6 million. (Copra is the dried meat of a coconut.)

The line had been written up on the previous examination by a senior examiner possessing extraordinary perception. The examiner had listed a number of potential problems, which, one by one, materialized.

The broker, whose volume of business was in decline, had sought to reverse the trend by taking positions as an exporter, and by purchasing some cargo ships to transport copra, for his own account, from the South Pacific to America.

Whatever could go wrong went wrong. The warehouse workers, in the country of production, were stealing outright. A correspondent bank released original documents, when the copy machine was out of order, allowing the shippers to withdraw copra without paying the lender or the warehouse. The cargo ships caught fire on the high seas, and the insurance company refused payment, claiming that the quantity of copra burned was less than what was declared in the manifests. The ships, sent for repairs in foreign ports, were sequestered for nonpayment of repairs. Ultimately, the importers refused payment, claiming that the shipments were short.

The International Department officers, perhaps after taking note of the bank examiner's write-up, refused to renew the line. Actually, they should have been aware of the problems long before the examiner, and should have placed the line on a liquidation basis.

Why did they not? Did the broker pull the copra, so to speak, over their eyes? Possibly. The president and chairman of the bank took it upon himself to approve the renewal.

Of course, after the line was charged off, and the bank took a loss (which at the time was considered substantial), nobody was fired.

It would seem that the broker was jinxed, but in effect, realistically, it had deviated from its course of business from broker to importer and shipper. That made matters worse.

The bank should have recognized that the broker's conditions had changed, and so should the conditions of the credit change, accordingly.

Usually, brokers operate with minimum capital; their strength is their capacity to broker transactions. But if, as in this case, they take positions and act for their own account, they are no longer brokers, but principals.

The extension of credit to principals takes on quite a different aspect with more stringent requirements of capital and terms.

Somebody in the department, though, had a sense of humor. There was a sheet of paper in the file with a sketch of the bank's distinct logo, a description of which would readily give away its identity, and a legend that can be paraphrased as: "Where is this bank? Up to its knees in copra."

Over his 50-year career in banking, Ugo Nardi worked his way up from a teller to an auditor, lending officer, state bank examiner, and a bank president. He retired in 2000.