New Upcoming Stock Requirement on Letters of Credit
December 1, 2020
Starting Jan. 22, 2021, we will add an activity-based stock requirement for Letters of Credit. The new requirement will be equal to 0.25% of your outstanding balance of Letters of Credit. We first told you about this change in August when we added the Mortgage Partnership Finance® (MPF®) Program stock requirement designed to help support the MPF Program’s future growth.
In our member experience survey, several Letters of Credit users indicated they would like a stock requirement on Letters of Credit to help counteract a portion of the small fee. Based on current market rates and the most recent dividend paid on Class B stock, members will see about a 1 bps effective reduction in the 12.5 bps letter of credit fee.
What does this mean for your FHLBank dividend?
Currently, members are rewarded for using FHLBank advances and the MPF Program with a patronage dividend on Class B activity-based stock. This patronage will now be extended to members for their Letter of Credit use based on their capital support and the contribution the assets make to our net income.
Because the capital raised is fairly small, we don’t expect a material impact to dividends paid on outstanding capital stock. The table below illustrates the benefit you receive from the dividend as you use each of our three main products.
What can you expect next?
You will receive official notification of your stock requirement on Jan. 22, 2021. Following that notice, you will have 60 days to comply with the new requirement assuming you do not issue Letters of Credit or transact MPF Loan fundings or advances.
If you do complete a Letter of Credit, MPF or advance transaction during that 60-day period, you’ll purchase the additional stock at that time for your letters of credit outstanding.
If you don’t complete a Letter of Credit, MPF or advance transaction during that 60-day period, you’ll purchase the additional stock on March 23, 2021. You’ll receive an email detailing the stock transaction that will take place that day.
If you’d like to monitor your current stock balances and requirements, visit the Stock Balances page on Members Only. To help you read the report, we’ve provided a short explanatory flyer.
If you have any questions on the new requirement, please contact your regional account manager or Lending at 800.809.2733.
"Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.