Standby Letters of Credit allow members to provide additional assurances to third parties. For example, Standby Letters of Credit are often used in place of securities to support public unit deposits, providing members with an attractive alternative to tying up high-quality investment securities.
Another type of Standby Letter of Credit is a Confirming Letter of Credit. A Confirming Letter of Credit or “wrap” is sometimes used in conjunction with a member’s letter of credit. Members have used this structure to wrap letters of credit provided to trustees to support bond issuances. The FHLBank may also issue a Standby Direct-Pay Letter of Credit directly to the trustee; either way, the letter of credit guarantees investors timely principal and interest payments.
Letters of credit may be issued for terms up to 20 years.
|
Standby (Including Direct Pay) |
Public Unit Deposits |
| Standard |
CIP |
| Terms |
Up to 10 Years |
Up to 20 Years |
Up to 10 Years |
| Annual Fee |
37.5 bps
$1,000 minimum |
20 bps
$500 minimum |
12 bps
No minimum |
| Additional Fees |
Additional Fees for change of beneficiary, remarketing draw, or early termination may apply. |
n/a |
| Capital Requirements |
0.10% of the value of the Letter of Credit |
| Collateral Requirement |
Collateral requirement similar to an advance.
Wide menu of potential collateral. |