New York City Approves FHLBNY’s L/C
as Collateral for City Deposits
Contact: Eric Amig - 212 441-6807 |
April 20, 2004 |
New York, New York -- The City of New York will now accept Federal Home Loan Bank of New York (FHLBNY) Letters of Credit (L/Cs) from member lenders of the FHLBNY as collateral for New York City deposits. This new approval can help member lenders to improve asset/liability management and to facilitate economic development.
Typically, a lender uses bonds as collateral for City deposits. Because the bonds are pledged, their utility is decreased for other liquidity purposes. Since member lenders can now pledge FHLBNY, irrevocable L/Cs in place of these bonds, the bonds are made available for the asset/liability management process. In addition, a member lender could use those bonds to fund other liquidity needs and, therefore, have an increased capacity to issue mortgages, write loans for businesses, and provide and make more funds available for communities' financial needs.
The use of L/Cs also provides lenders with the operational benefits of reducing the expenses of monitoring these deposits and eliminating the need to match securities and monitor margin calls.
"I am confident that New York City accepting the FHLBNY Letters of Credit ensures that the City's deposits are protected and at the same time encourages member institutions to increase their services to New Yorkers," said New York City Comptroller William C. Thompson, Jr. "The FHLBNY and its members' commitment to affordable housing and economic development will further our goal to increase economic development and revitalize many of New York's neighborhoods."
“The acceptance by the City of New York of our L/C program provides our members with an efficient and low-cost way to collateralize NYC deposits and better serve their communities,” said Alfred DelliBovi, President of the FHLBNY. “This is a win-win decision by the City.”
An FHLBNY Letter of Credit is its promise, made at the request of a member, to make payments to a third-party beneficiary. It allows members to substitute the credit standing and capital market access of the FHLBNY for that of the members.
The Federal Home Loan Bank of New York is a Congressionally chartered, wholesale Bank. It is part of the Federal Home Loan Bank System, a national wholesale banking network of 12 regional, stockholder-owned banks. The FHLBNY currently serves 306 financial institutions in New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Since 1990, the 12 district banks in the Federal Home Loan Bank System have contributed more than $1.7 billion to affordable housing development in the U.S. The mission of the Federal Home Loan Banks is to support the efforts of local members to help provide financing for America’s homebuyers.