Frequently Asked Questions About Borrowing Capacity
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Borrowing capacity, including your ability to access your Overnight Line of Credit, is dependent upon several factors including the amount of qualifying collateral available to secure borrowings, the adequacy of your capital structure and management’s capacity and willingness to purchase additional HLB stock. In addition to having sufficient collateral and the ability to purchase additional stock, other criteria can affect your maximum borrowing capacity, such as:
- Total Non-Repo credit exposure cannot exceed 30% of total assets unless you request and are granted approval from the HLB’s Executive Committee. If approved to exceed 30%, you can borrow up to the approved limit, the maximum being 50% of total assets.
- Overall credit exposure (i.e., total indebtedness including Repo and Non-Repo Advances, Letters of Credit and MPF credit enhancements) cannot exceed 50% of assets.
- During any given month, borrowing capacity cannot exceed $500 million net new money unless the HLB’s Executive Committee gives prior consent.
The HLB’s Capital Plan requires you to hold Activity-Based stock equal to 4.5% of current outstanding borrowings.* The HLB redeems excess capital stock daily.
An example of how the HLB calculates borrowing capacity
Member ABC is a well-capitalized institution that has:
- $250 million in assets;
- $20 million in outstanding HLB advances;
- $125 million in qualifying collateral; and
- Owns $900,000 in Activity-Based capital stock (4.5% of $20 million).
Without any exceptions or approvals, ABC’s total borrowing capacity for non-repo advances is $75 million (30% of total assets) so long as it has sufficient qualifying collateral and is able and willing to purchase additional stock. If ABC wishes to borrow more than $75 million using qualifying real-estate collateral, it would need approval from the HLB’s Executive Committee. If approved, ABC’s borrowing capacity could be increased to as high as 50% of assets, or $125 million.
FAQs
- How can I determine my current borrowing potential with respect to collateral?
- The Collateral Position-Customer Summary Report indicates your current borrowing potential, based on collateral pledged, confirmed as eligible and available. It can be accessed via 1Linksm, the HLB’s secure internet banking system. Please keep in mind that the report does not account for any securities safekept outside the HLB or any securities that are safekept at the HLB that are not specifically pledged for advance borrowings.
- Why doesn’t my borrowing potential from real estate collateral match my Call Report or the electronic listing I send in each month?
- There are a number of reasons why your borrowing potential may differ. The most common reasons for differences include:
- When determining current borrowing potential, CML and MVA values ("haircuts") are applied to a collateral pledge.
- Loans may become ineligible because there are data deficiencies on the mortgage listing. Please check to make sure all required fields are entered.*
- The Call Report may indicate loans made that might technically qualify as 1-to-4-family residential loans although they are not used for residential purposes.
- The market value of the loan may be greater or less than the book value. An amortization discount may be applied, depending on the frequency of listing's submissions.
- Some of the residential loans may be in use at the Federal Reserve´s Discount Window.
- I know that I have securities that are safekept at the HLB; why are they not included in the Collateral Position-Customer Summary Report?
- Securities that are safekept with the HLB need to be specifically pledged for advance borrowings. If they are not specifically pledged, then they are not available for immediate borrowing. If you have securities that you would like to pledge towards borrowings, please contact Safekeeping at (201) 356-1067 or your Calling Officer at (212) 441-6700.
- What securities are eligible for borrowing?
- In general, any Treasury or U.S. government agency security can be used as collateral, as well as most mortgage-backed securities (pass-throughs and CMOs), including private label issues that meet all regulatory legislation and guidance. Ineligible securities include municipal and corporate bonds and equities. For a comprehensive listing of eligible collateral, please refer to page 36 of the Member Products Guide, which can be accessed via 1Link.
* To discuss data deficiencies on mortgage tapes submitted or for answers to other collateral-related questions, please contact Collateral Services at (201) 356-1065.