April 14, 2020
Enhancements to the Refundable Municipal Letter of Credit for Members Participating in the New Jersey Department of Banking and Insurance Governmental Unit Deposit Protection Act (GUDPA) Program
We are pleased to announce that our Members are now able to take advantage of the FHLBNY’s Refundable Municipal Letter of Credit (REMLOC) program when collateralizing municipal deposits under the New Jersey Department of Banking and Insurance (NJ DOBI) GUDPA program1.
A REMLOC provides all of the same benefits as the FHLBNY’s regular municipal letter of credit (MULOC) offering, but is designed for members to collateralize fluctuating municipal deposit balances more efficiently. A REMLOC can be booked with a notional value that is in excess of the anticipated average balance of the underlying municipal deposit accounts, where the member may potentially receive a partial refund at the end of its term for the unused portion of collateralization (difference between the average balance of the municipal deposits and the REMLOC’s notional value). Refunds may not exceed 30% of the initial fee for the REMLOC (minimum eligible refund amount is $100.00).
Key Benefits of REMLOC and MULOC
Enhances balance sheet liquidity by enabling members to utilize whole-loan mortgages as collateral instead of encumbering liquid securities.
Creates operational efficiencies as our REMLOC/MULOC notional values will not change during its term.
Benefits communities as REMLOCs/MULOCs allow financial institutions to use municipal funding for lending back into their respective footprints, instead of using the liquidity to finance securities collateral.
Member profitability may be enhanced as municipal deposit liquidity can be deployed into higher-yielding loans, instead of locking up liquidity in lower-yielding securities collateral.
Both REMLOC and MULOC are pathways to accumulate FHLBNY capital stock. Members are required to purchase capital stock equal to 12.5 basis points of the notional value of their letters of credit.
REMLOC Parameters for Collateralization under NJ DOBI’s GUDPA program
REMLOCs will be limited to a minimum term of 14 days and a maximum of 30 days.
New Jersey members may use a REMLOC as the sole form of collateral or it can be combined with securities collateral. If pledging securities to NJ DOBI in combination with a REMLOC, the securities collateral must be part of a third-party pledge arrangement using the FHLBNY’s safekeeping service.
REMLOCs may not be combined with another REMLOC – should additional collateral be necessary, a member, on a case by case basis, may apply to add a regular MULOC to the collateral stack with a maturity not to exceed the term of the existing REMLOC.
For additional information please contact your Relationship Managers at 212-441-6700 or the Member Services Desk at 212-441-6600.
1Previously, New Jersey members were unable to utilize REMLOCs under the “pooled’ collateralization structure of NJ DOBI’s GUDPA program.
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