Municipal Letter of Credits (“MULOCs”)
In the past, banks did not have this alternate way to facilitate a variety of transactions with third parties. But now under New York and New Jersey law, commercial banks and qualified savings and loans or savings banks may utilize an HLB MULOC as eligible collateral, providing a low-cost, more efficient way to collateralize deposits.
HLB MULOC Benefits for Municipalities
The following are some of the benefits that come with accepting an HLB MULOC as collateral:
- No cost to you — the MULOC is paid for by the HLB 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, 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 AAA-rated and irrevocable, which means they can only be altered or cancelled if all three parties agree in writing to the changes
- Operationally efficient for all parties — the MULOC eliminates the need for the depository bank to match securities and monitor margin calls, which reduces operational expenses; eliminates the municipality’s need to monitor third party custodian safekeeping reports or bank statements; and MULOCs are issued quickly, usually within a few hours
How do you request an HLB MULOC?
Only members of the HLB can request a MULOC from the HLB, so third parties must work with a member-lender that participates in the MULOC program. With over 300 member-lenders, there’s a good chance that your current bank is an HLB member.
Click here for a complete listing of HLB 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.
