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Bulletin No.: 2014-23
September 30, 2014


SUBJECT: Bank Offers Reduced Pricing on All Letters of Credit and Introduces a New Feature – the Fluctuating Balance Letter of Credit

Beginning October 1, 2014, the Federal Home Loan Bank of Dallas (Bank) will reduce the pricing on all Standby and Custodial Letters of Credit (LOC) to 5.5 basis points (bps). While all pricing is subject to change, we believe that our members should be able to secure public unit deposits in a cost-effective way. Therefore, LOC pricing for public unit deposits will remain at 5.5 bps.

In addition to the reduced pricing, we are pleased to announce a new feature for our LOC products that will provide our members with the option of paying only for the amount of the LOC used as collateral by the member institution, which, in many instances, will create cost savings.

As with all of the Bank’s LOCs, the Fluctuating Balance LOC provides our members with a competitively priced, easy-to-manage method of collateralizing public unit deposits (PUDs). However, Fluctuating Balance LOCs eliminate up-front fees and provide the member potential cost savings because fees will be charged quarterly in arrears based upon the lesser of: 1) the notional amount of the LOC; 2) the amount of the public unit deposit(s); or 3) the amount of collateral required to be held against the public unit deposits secured by the LOC.

For example, members with public deposits related to tax collections may experience seasonality with respect to those deposits. The Fluctuating Balance LOC allows the member to establish one LOC based upon the maximum expected deposit from the public unit depositor. As funds are withdrawn from the account, the balance and required collateralization also decline. The fee associated with the Fluctuating Balance LOC will be charged on the reduced amounts. The Fluctuating Balance feature is available for both Custodial and Direct Standby LOCs. The Fluctuating Balance LOC can be used for a single depositor (Direct Standby LOC) or multiple depositors (Custodial LOC), as long as the notional amount is at least $25 million.

LOCs provide members a cost-effective, efficient method for securing public unit deposits that exceed the amounts insured by the FDIC, giving members the ability to collateralize deposits from such public entities as counties, school districts, hospital districts, and municipalities.

Other benefits of using the Fluctuating Balance LOCs include:

  • Potentially provides a lower-cost alternative to traditional LOCs
  • Fees are based upon the amount of the LOC required to be pledged as collateral
  • Ease of administration for both the member and the depositor when compared to pledging securities as collateral
  • Maturities may range from one day to 15 years
  • LOCs are not subject to market value fluctuations
  • Provides Aaa/AA+ credit quality

Enclosed is a white paper outlining in more detail the uses of the Fluctuating Balance LOC. For additional information on the product, or to request a Fluctuating Balance LOC, please contact your Member Sales Officer at 800.442.9841.

The Bank will conduct a webinar at 10:00 Central Time October 21, 2014, to review the new feature and to answer your questions. You will receive an email from us in the next week with details on registration.


Sanjay K. Bhasin
President and Chief Executive Officer

View the Fluctuating Balance LOC white paper