Letters of Credit

Refundable Municipal Letters of Credit

On June 1, 2009, the FHLBNY launched a new type of letter of credit — the Refundable Municipal Letter of Credit (Refundable MULOC). This letter of credit is more flexible in collateralizing municipal/public fund transaction accounts, whose balances fluctuate over time.

Term:

2 weeks to 1 year

Regular Municipal Letters of Credit (MULOC) are traditionally used to collateralize fixed-balance and term certificates of deposit. As such, matching the MULOC to the balance in the deposit is easy. With a transaction account, the balance will fluctuate with municipal/public fund receipts and disbursements.

To avoid having to issue multiple MULOCs as the balance fluctuates, a member can obtain a Refundable MULOC in an amount in excess of an estimated average balance in the transaction account. A portion of the MULOC fee can be refunded at maturity if the actual average balance in the transaction account remains below the notional amount of the Refundable MULOC during its term. Please note, REMLOC refunds will be limited to a maximum amount equal to 30% of the initial Letter of Credit fee, and members will not be eligible for a return of fees if the refund amount falls below $100.

Example: You estimate your transaction account high-balance to be $5 million for the year. At the end of the year, your actual average balance is $4 million. You will be reimbursed the fee for the unused $1 million.

In short, the new Refundable MULOC provides all the advantages of a regular MULOC, but it also offers a partial fee reimbursement when the MULOC is not fully utilized.*

Benefits of the Refundable MULOC

In addition to the regular MULOC benefits, Refundable MULOCs:

Reduce MULOC fees if full MULOC is not utilized

Reduce over-collateralization of municipal/public fund deposits with fluctuating balances

Are operationally efficient

*To receive a refund, you must complete and fax the Refundable MULOC Certification Form (HLB-118r) within 5 business days of the L/C’s maturity.

Municipal Letters of Credit (MULOCs)

In the past, some financial institutions did not have this alternate way to collateralize municipal/public fund deposits. Now several states and territories, including New York, New Jersey, Puerto Rico and the U.S. Virgin Islands, have amended their laws to permit these institutions to utilize an FHLBNY L/C as eligible collateral.

FHLBNY MULOC Benefits for Municipalities

The following are some of the benefits that come with accepting an FHLBNY MULOC as collateral:

No cost to you — the MULOC is paid for by the FHLBNY member institution, not the municipality

Immediate pay out — in the unlikely event of a default in performance by the member institution, municipalities get paid promptly upon submission of a proper draw certificate, as opposed to selling securities to the market

Convenient — municipalities will receive, on the day of the transaction, a one page MULOC via fax with the original transmitted via an overnight delivery service

Secure — MULOCs are highly rated and irrevocable, which means they can only be altered or cancelled if all three parties agree in writing to the changes

Deposit products for your excess funds

Operationally efficient for all parties — the MULOC eliminates the need for the depository institution to match securities and monitor margin calls, which reduces operational expenses; eliminates the municipality’s need to monitor third party custodian safekeeping reports or statements; and MULOCs are issued quickly, usually within a few hours

How do you request an FHLBNY MULOC?

Only members of the FHLBNY can request a MULOC from the FHLBNY, so third parties must work with a member-lender that participates in the MULOC program. With over 330 member-lenders, there’s a good chance that your current lender is an FHLBNY member.

Click here for a complete listing of FHLBNY members. Please contact members directly to see if they participate in the MULOC program, or click here to request a list of participating members in your area.

Applying for an FHLBNY MULOC or Refundable MULOC

Step 1: Enroll in the Letter of Credit program by completing the following forms:

1. Global Authorization Form (HLB-106) Complete this form for employees you wish to grant permissions (Section 4) to execute a Letter of Credit at the FHLBNY.
   Note: If you have a form on file with us, please contact us for a copy.
2. Irrevocable Letter of Credit Reimbursement Agreement (HLB-115) Complete this one-time enrollment form for the FHLBNY’s Letter of Credit program. Once your institution is enrolled, you need to submit a Municipal Letters of Credit or Refundable Municipal Letters of Credit Issuance Application (HLB-117 or HLB-118) and any supporting documentation requested by the FHLBNY each time you wish to use this credit instrument.

Step 2: Apply for a MULOC or Refundable MULOC product:

For MULOCs:

1. Complete the MULOC Issuance Application (HLB-117) or HLB-117A for Puerto Rico Members.
2. Supply a copy of the Certificate of Deposit you issued to the Beneficiary or provide a statement of your Beneficiary’s Demand Deposit Account.

For Refundable MULOCs:

1. Complete the Refundable MULOC Issuance Application (HLB-118) or HLB-118A for Puerto Rico Members.
2. Supply a copy of the Certificate of Deposit you issued to the Beneficiary or provide a statement of your Beneficiary’s Demand Deposit Account.
3. Complete and fax the Refundable MULOC Certification Form (HLB-118r) within 5 business days of maturity. If this form is not received within 5 business days of maturity, the reimbursement may be forfeited.*

*Please note, for REMLOCs issued prior to June 1, 2020, see this form.