Industry Publications

December 2005

Adam Goldstein, VP & Director of Sales & Marketing

Federal Home Loan Bank Letters of Credit Comes of Age
Aaa-rated Letters of Credit increasingly used in municipal transactions

This article appeared in the:
NJ League of Municipalities - NJ League of Municipalities Magazine

Municipal finance officers are beginning to see a new counterparty on the Letters of Credit (“L/C”) landscape: the Federal Home Loan Bank of New York (“HLB”). The Federal Home Loan Bank System, comprised of 12 district Banks nationwide, is a congressionally chartered, government sponsored enterprise (GSE) that has been in business for over 70 years. With just under $1 trillion in assets, the FHLBank System makes it possible for lending institutions to help families realize the dream of home ownership, stimulate the creation of affordable housing, and improve the local business environment. Many municipal officials are familiar with the Federal Home Loan Banks as issuers of bullet and callable debt. FHLBank System securities enjoy AAA credit quality and worldwide acceptance.

Recently, the HLB attended and exhibited at the Government Finance Officers Association of New Jersey’s Fall Conference in Atlantic City, where its representatives received a warm reception. Municipal officials were pleased to know that another solid counterparty is available to issue letters of credit. Municipalities especially find the HLB’s L/C appealing because, unlike securities, its value remains constant and does not change with market fluctuations. In the unlikely event that a municipality’s financial institution defaults on its commitment, the municipality can submit a draw request to the HLB for prompt payment. In addition, accepting an L/C as collateral poses no additional cost to the municipal depositor. The financial institution using the L/C pays for it.

Since the State of New Jersey backs municipal deposits, municipal finance officers may not be aware that their bank deposits can be secured by a HLB Letters of Credit. However, member institutions frequently use HLB letters of credit to meet their GUDPA obligations.

“The Home Loan Bank has been a perfect L/C partner for our municipal obligations. Banks like ours with a healthy loan demand can use an L/C instead of purchasing securities just to satisfy our GUDPA obligations. With the competitive pricing offered by the HLB, we’d rather use an L/C and make loans than buy securities at lower yields. Also, I don’t have to worry about principal amortization, securities calls, etc. The State of New Jersey is comfortable with the Home Loan Bank as a counterparty. We started utilizing the L/Cs after the State changed its GUDPA regulations to recognize HLB letters of credit.”

John Miller, EVP and CFO
Sturdy Savings Bank, Cape May, N.J.
(HLB member since 1934)

The HLB supports financial institutions located throughout New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The HLB has emerged as an L/C counterparty because of its strong relationships with over 300 community banks, savings banks and credit unions who rely on the HLB as a primary source of financing. Forty percent of our financial members are located throughout New Jersey. Holding a balance sheet of over $85 billion and GSE status, the HLB is recognized as a reliable counterparty for L/C transactions. The HLB’s capacity to meet financial commitments is extremely strong, with a AA+ credit rating from Standard & Poor’s and a Aaa rating from Moody’s rating services.

If you would like additional information on L/Cs and the benefits they offer, contact Adam Goldstein, Vice President, Director of Sales and Marketing, at (212) 441-6703 or visit the HLB’s homepage at

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