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Overview

Standby Letters of Credit from FHLB Dallas are rated AA+ and AAA by Moody's and Standard & Poor's, respectively. Terms range from overnight up to 15 years. LOCs will not be issued in terms exceeding 15 years. The issued LOC will remain in effect until the stated expiration date, unless all parties, including the beneficiary, agree in writing to an earlier expiration date.

To apply, members should execute either a Standby Letter of Credit Application or a Custodial Letter of Credit Application, and a Security Agreement, outlining the terms and conditions of FHLB Dallas' issuance of LOCs. A separate application that identifies the beneficiary and purpose of the LOC, and other information required by FHLB Dallas must be submitted for each LOC issued by FHLB Dallas.


Renewal and Amendments

At a member's request, FHLB Dallas may issue LOCs that are automatically extended for a specific term. For LOCs not automatically renewed, a member may amend the LOC by increasing the amount, decreasing the amount (if a Custodial LOC), expiration date (to a longer term), and final expiration date, if an Evergreen LOC. For LOCs not automatically renewed or amended, a member may request a new LOC at maturity.


Fluctuating Balance Letter of Credit Option

Standby and Custodial Letters of Credit, issued for the benefit of a single public unit depositor in an amount of $5 million or greater, may be issued by FHLB Dallas using the fluctuating balance option. This option allows the member to be charged a fee based on the average daily collateral utilization of the aggregate deposits of the Beneficiary that are collateralized by the Letter of Credit during the preceding quarter. Fees are debited from the member's main deposit account on the fifth business day following the end of the quarter. Members are required to submit a certification to FHLB Dallas no later than the third business day following the end of the quarter providing the average daily balance amount.

All Letters of Credit issued by the Bank will be secured by the pledge of, and creation of a security interest in, collateral as provided for in the Bank's current Member Products & Credit Policy. The principal amount of the Letter of Credit/Confirmation will be added to the members' outstanding advances for the purposes of calculating collateral requirements.

Generally, FHLB Dallas does not anticipate that a Standby Letter of Credit/Confirmation will be funded. However, if funding does occur, the member must reimburse FHLB Dallas on the same day by depositing immediately available funds in its deposit account at FHLB Dallas. FHLB Dallas may permit the member to finance its reimbursement obligation, in which case the funding becomes an advance that is rolled over daily. The advance may then be converted to an appropriate term and interest rate upon request by the member and agreement by FHLB Dallas. In addition, any required capital stock purchase for the advance will be calculated and sufficient collateral will be required at the time of funding.

 

Fluctuating Balance Letter of Credit

A Fluctuating Balance LOC provides your institution with the ability to collateralize deposits from public units such as states, counties, school districts, hospital districts or municipalities over a longer term, but unlike a traditional LOC, your institution is charged based on average quarterly utilization rather than the notional amount of the LOC at issuance.


Evergreen Feature for Letters of Credit

The Evergreen feature is available with Letter of Credit Confirmations, Direct Letters of Credit and Standby Letters of Credit. They can be structured to meet a range of objectives with flexible terms:
  • Renewal period (in days or months)
  • Final expiration date (up to 15 years)
  • Notice period for non-renewal
Without FHLB Dallas' notice to the beneficiary, the Evergreen feature automatically renews the Letter of Credit through the final term.