Division Title
FHLB of Des Moines Letters of
Credit Will Help You Keep and
Attract Deposits
Letters of Credit for
Public Unit Deposits
In light of the recent
decision by Kansas Bankers
Surety Co. to discontinue
offering bank deposit guaranty
bonds for public unit
deposits, FHLB
Des Moines would like to
remind you of our Letters of
Credit (LOC) program.
FHLB Des Moines Letters of
Credit are authorized forms of
collateral for public unit
deposits in our five-state
district. Our LOC program will
help you attract and keep
public unit deposits in excess
of $100,000 and eliminate the
inconvenience and expense
associated with pledging
securities to collateralize
municipal deposits.
Accepting a LOC as collateral
poses no additional costs to
the municipal depositor and
allows member banks to
collateralize the exact amount
and term needed to meet their
depository obligations. Unlike
securities, the value of the
Bank’s LOC remains constant
and does not change with
market fluctuations. This is
the
primary reason why many local
municipalities are requesting
our Letters of Credit rather
than securities.
The LOC application and fee
schedule can be found on our
public website at
http://www.fhlbdm.com/ps_creditproducts.htm.
Applications must be received
at the Money Desk by 3:00 p.m.
for same day processing. For
more information about the LOC
program, please contact your
local Vice President/Member
Services or the Money Desk at
800.544.3452, ext. 1013.
Letters of Credit for
Retail Deposits?
In the last several months,
many members have inquired
about using FHLB Des Moines
LOC for collateralizing retail
deposits (i.e. individual or
business deposits). This is an
issue that each member bank
must clarify with their
individual regulator.
A financial institution’s
authority to use FHLB Des
Moines LOC for retail deposits
varies by state and regulator
making it particularly
important for each individual
member to secure their
regulator’s approval.
The Bank has conducted
extensive research to clarify
this issue for our members. It
was discovered that banking
regulations are not consistent
and differ from state to state
and from one type of regulator
to another. During our
research, we received
conflicting opinions from the
same regulator in the same
state.
FHLB Des Moines is not in
the position of interpreting
banking regulations. Our
research indicates that in
most cases our LOC cannot
be used to collateralize
retail deposits. Nevertheless,
some exceptions do exist.
Please contact your respective
regulator to verify their
position on this important
issue.
Changes for LOC in the
Internal Revenue Code
As a result of the credit
crisis, local municipalities
and other tax-exempt issuers,
such as universities and
hospitals, are finding it
considerably more difficult to
get credit support from
AAA-rated municipal bond
issuers. Their borrowing costs
are soaring making funding
critical community projects
often cost-prohibitive.
In late July, Congress
approved a provision in the
Housing and Economic Recovery
Act of 2008 that permits the
Home Loan Banks to support
member banks’ Letters of
Credit for tax-exempt bond
issues. The provision allows
local municipalities to lower
their borrowing costs and have
guaranteed funding without
losing the bonds’ tax-exempt
status.
With a performance guarantee
from a AAA-rated entity, such
as FHLB Des Moines, local
communities will now be able
to raise funds for water
treatment facilities, bridges
and other infrastructure
improvements along with
industrial development,
healthcare facilities, fire
stations, parking facilities,
long-term care for the
elderly, schools and other
important activities.
To discuss the benefits of
extending FHLB Des
Moines-guaranteed LOC on
behalf of tax-exempt bond
issues, please contact your
local Vice President/Member
Services.
New Standby Letters of
Credit (SLOC) Pricing
Effective September 15, 2008,
FHLB Des Moines began offering
new tiered pricing for Standby
Letters of Credit greater than
$20 million. For a complete
credit fee schedule, please
visit our public website at
http://www.fhlbdm.com/ps_creditproducts.htm.
