Decreasing Securities Eligibility
posted on Monday, March 12, 2018 in Letters of Credit
A financial institution has historically supported a portfolio with a high percentage of agency mortgage-backed and callable agency securities. Interest rates have dropped and many of these securities have paid down quickly or have been called. As an alternative investment option, the institution would like to purchase municipal securities (which are not typically accepted by public units as a form of collateralization). The options: A) Refrain from purchasing municipal securities and continue running the risk of further securities pay-downs. B) Shift to municipal securities purchases and pursue revised investment objectives by deploying a letter of credit program.
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