The Forgotten Security Call
posted on Monday, March 12, 2018 in Letters of Credit
Historically, a financial institution has collateralized a public unit deposit with a pledge of callable agency securities. A member subsequently receives notification that the callable bond will be called in five days, the next scheduled call date. The options: A) Hurriedly pledge an alternative security (or occasionally run the risk of forgetting to replace the collateral, given settle times and monitoring requirements). B) Consider collateralizing that deposit until a replacement security is found, with a letter of credit. The letter of credit may be customized by amount and timeframe. Also, consider replacing part or all of the securities pledging program with a letter of credit program.
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