AAA Rated FHLBank letters of credit provide an attractive alternative to
using traditional collateral for various transactions.
Advantages
·
Allows member to utilize FHLBank AAA Credit rating
·
Enhances member liquidity (substituting LOC for securities
as collateralization of public unit deposits and other financial transactions)
·
Residential mortgage loans (blanket pledge) can be
used as collateral for LOCs with qualifying member institutions
Eligible Activities
FHLBank can issue or confirm standby letters of credit on behalf of
member institutions to facilitate the following types of business transactions with third parties:
·
Financing of residential housing
·
Community lending
·
Asset / Liability Management
·
Liquidity and other funding needs
Types of Letters of Credit
FHLBank can issue or confirm standby letters of credit on behalf of
member institutions to facilitate the following types of business transactions with third parties:
·
Standby LOC - a financial instrument issued by FHLBank to provide a beneficiary
recourse in the event of a member's default or failure to perform under a contract or other
agreement between parties. It substitutes FHLBank's AAA rated credit rating for the member's credit.
·
Direct Pay LOC - a variation of the standby letter of credit, where the direct recourse
is to FHLBank versus the obligor of the underlying debt being enhanced. It does not substitute FHLBank's
credit for the member's credit in the event of default or failure. Instead, FHLBank becomes the
direct obligor.
·
Standby LOC for Public Unit Deposits - a regular standby letter of credit that is used
for the collateralization of public unit deposits.
Terms and Conditions
·
Must contain specific expiration date or be for a definite term
·
Must be fully collateralized at time of issuance
·
Outstanding LOCs are NOT included in the computation of the member's advances to capital ratio
Required Documentation
·
LOC Security Agreement and Resolution
·
Application for LOC
Pricing
·
Stand-By: 15 basis points + $100
·
Direct Pay: 37.5 basis points + $250
·
Stand-By for Public Unit Deposits:
Pre-Approved Line of Credit
Average Daily Balance
Fee
$0 to $5 Million
15.0 basis points
$5,000,001 to $25 Million
12.5 basis points
$25,000,001 and higher
10.0 basis points
Transaction Based
·
12.5 basis points, $125 minimum charge
For more information, contact our Credit Department at 1-800-828-4191 or 513-852-7519.
