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FHLBank Letters of Credit: Securing Public Deposits Made Simple, Profitable

With liquidity remaining at a premium, many financial institutions are searching for more attractive wholesale funding options to replace costly alternatives. But as yields on treasury and other securities have spiraled downward, some banks have allowed their securities portfolios to mature, reducing the amount of liquid collateral available to secure deposits from public entities such as municipalities or school districts. Moreover, credit enhancement fees from correspondent banks can be an extravagance few banks can or should afford.

One practical solution available to FHLBank Pittsburgh members is a Letter of Credit (LOC). An FHLBank LOC can be used to replace the collateral that many community banks currently lack. Backed by FHLBank’s AAA credit rating, FHLBank LOCs provide the level of security desired by public institution depositors at all levels of government.

Benefits of Using LOCs for Public Deposits

Members derive a variety of benefits from using LOCs for public deposits:

• At a time when retail deposits and brokered CDs are relatively costly, public deposits may offer banks a more affordable alternative for increasing liquidity and restoring investment capital.

• Rates for FHLBank LOCs are very favorable when compared to those of most correspondent banks.

• Public deposits help banks remain a strong and central part of the communities they serve.

• LOCs are simple to obtain and easy to use, with FHLBank Pittsburgh handling the associated administration tasks

If you are a member of FHLBank Pittsburgh and are looking to add attractive wholesale funding through public deposits, an LOC may be just the wrap-around you need to enhance your company’s bottom line. For more information, or to arrange an LOC, contact the Money Desk at 1-800-288-3400.

Please note: The issuance amounts of LOCs must be collateralized by the same collateral eligible for advances and are charged against a member’s maximum borrowing capacity; this will reduce the amount of FHLBank advances the member may access.

Disclaimer
FHLBank makes no representations or warranties, express or implied, as to the accuracy, completeness and timeliness of any assumptions or any other data presented in the article.

The information presented in the article  is not investment or business advice, nor is it an offer to extend credit or buy any security or financial product. Readers must not rely on any of this information when making any investment, business or credit decision.

FHLBank products are governed by various agreements between FHLBank and its customers, as well as certain FHLBank policies and applicable regulations. In the event of any inconsistencies between information contained in this article and such agreements, policies and regulations, the agreements, policies and regulations will be determinative.