Types of Letters of Credit
We offer five types of letters of credit to meet your needs and each LOC issued by FHLBank Boston must be collateralized by any form of collateral that is accepted for advances and meet a minimum capital stock investment requirement. See below for more information about each LOC type and related requirements.
The Fixed Balance LOC offers a fixed fee and is simple and easy to use. All you need to do when you apply is specify a credit amount, beneficiary and term based on anticipated deposit balances during the LOC term.
Master Variable Balance
The Master Variable Balance LOC provides a flexible, convenient, and cost-effective form of collateral for members with a large number of public-unit depositors. This single LOC may be used to collateralize deposits of multiple public-unit customers pursuant to a trust agreement between the member and a master trustee responsible for allocating the LOC across multiple customers and accounts.
The cost-effective Refundable Balance LOC allows members to account for balance fluctuations associated with state, local, and other public-unit deposit accounts and provides added flexibility by offering a collateralization option with the potential for a refund. At maturity, members report their actual daily balance and may be entitled to a refund on a portion of their upfront fees.
The Variable Balance LOC provides a flexible, cost-effective option that gives you the coverage you need. You can specify a credit amount equal to the estimated highest deposit balance during the term of the LOC. Each quarter, you will be required to submit certifications of average daily balances in the account(s) covered under the LOC, which may be lower than the credit amount initially requested. This provides members with an opportunity for savings if balances are lower than anticipated. FHLBank Boston invoices quarterly, in arrears, based on the certified average deposit balances.
With a Standby LOC, the member issues their own LOC to the benefit of the bondholder(s), usually to fund public housing initiatives. You promise to pay the bondholder(s) in the event that the "borrower" (bond issuer) defaults on its obligation to pay principal and interest to the bondholders.
FHLBank Boston will then issue a confirming LOC, also to the benefit of the bondholders, which promises to pay the bondholders if your institution defaults on its LOC.
Please note that Standby LOCs are not available via Online Banking and must be ordered by calling the Member Funding Desk at 1-800-357-3452.