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You value the business provided by your municipal clients, but the required pledging of securities can be onerous and costly. You need an alternative that is efficient and flexible yet still provides your clients with the security they demand. A letter of credit issued by the Federal Home Loan Bank of Boston can provide you with security and convenience along with the backing of an AAA-rated financial institution.

Because of our strong credit position, many municipalities will accept a letter of credit issued by FHLB Boston in lieu of pledging securities for municipal deposits. This efficient, low-cost option allows you to retain securities for liquidity and other purposes. We offer an easy application process and flexible terms and conditions.

How Letters of Credit Work
To cover municipal deposits, the member would apply for a letter of credit, issued by FHLB Boston. The member is referred to as the applicant, while the municipality is the beneficiary. A letter of credit must have an expiry date and can only be cancelled with the beneficiary’s consent. Typically, the letter of credit will call for presentation of a statement by the municipality certifying that the member has failed to meet the terms of the agreement. Should the municipality submit such a statement to FHLB Boston, the letter of credit guarantees payment to the municipality as long as the statement meets the terms of the letter of credit. FHLB Boston would honor the obligation of the member bank to redeem deposits to the municipality. At that time, an advance will be created against the member’s account.

Collateral and Capital Requirements
A letter of credit issued by FHLB Boston must be collateralized, but any form of collateral that is acceptable for advances may be used, including 1-4 family loans, which may already be pledged in your blanket pledge. There is also a requirement to purchase stock, but only half  the amount required for advances.

Pricing
Prices range from nine to 25 basis points times the amount of the letter of credit, depending on its size.

Learn More
For more information on using letters of credit to cover your municipal deposits, please consult your relationship manager at 888-595-8733.

In our Solutions newsletter, see how some members are using LOCs to secure municipal deposits. Our triple-A-rated letters of credit are available in maturities of up to 10 years. Please see our Products Policy.

This statement does not purport to disclose all of the risks and other material considerations associated with letters of credit. Members should not construe this disclosure statement as business, legal, tax, or accounting advice from FHLB Boston. Members should consult with their own business, legal, tax, and accounting advisers with respect to letters of credit and should refrain from using them unless they have fully understood their terms and risks.