How to Use Letters of Credit to your Advantage

last updated on Friday, December 9, 2016 in Letters of Credit

A Letter of Credit (LOC) from the Bank is an attractive alternative to pledging securities for public unit deposits. LOCs can also be used on other qualifying transactions (for example, bond issuances for community improvement projects) to improve the credit rating, thus lowering the cost of the project.  The Bank's credit standing and capital market access substitutes for that of the member which helps to ensure a wide acceptance of our LOCs.

Eligibility Requirements

The Bank may issue irrevocable and confirming Standby Letters of Credit on behalf of members or housing associates for any of the following purposes:

  • Facilitate residential housing finance;
  • Facilitate community lending;
  • Assist members or housing associates with asset/liability management;
  • Provide members or housing associates with liquidity or other funding;
  • Confirming taxable and tax-exempt housing bond issuance; and
  • Confirming taxable non-housing bond issuance.

Use of the Bank's LOC may be subject to state and/or federal regulations. As we do not provide any guidance on this matter, it is each member's responsibility to ensure that the use of an FHLB Des Moines LOC complies with any regulation to which a member is subject to.

Collateral Requirements

LOCs are subject to the same collateral requirements as Bank advances.

Activity Stock Requirements

Effective October 1, 2020, members will be required to purchase and hold activity stock in an amount equal to 0.10% for LOCs. This requirement will apply to any new, renewed or modified confirming or standby LOCs issued on or after October 1, 2020.

Application Requirements

Requests for an LOC for Public Unit Deposit purposes (e.g., state and county treasurers, school districts, cities and townships) or for Non-Public Unit Deposit purposes (e.g., to facilitate residential housing finance, community lending or for asset/liability management) require the submission of an LOC application.

Please contact the Money Desk with questions about LOC applications or for additional assistance or details about the Bank's Letter of Credit.


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