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Credit Products – Letters Of Credit

Federal Home Loan Bank of Boston letters of credit can be used to facilitate residential housing finance and community lending, assist with asset/liability management, and provide liquidity or other funding. An FHLB Boston LOC provides the backing of a highly rated institution that ensures wide acceptance for multiple purposes including:

  • Securing public unit deposits;
  • Credit support for certain tax-exempt bonds and taxable bonds;
  • Performance guaranty in lieu of a construction performance bond;
  • Collateral for obligations arising pursuant to an interest-rate swap, interest-rate exchange, or other such comparable agreement; and
  • Credit support for other financial obligations.

Our LOCs are most commonly used to secure deposits made by state government, municipalities, and other public instrumentalities, known as public units, and provide credit support for tax-exempt bonds.

Securing Public Unit Deposits

Members value public unit deposit business, but the required pledging of collateral can be onerous and costly. FHLB Boston LOCs offer an efficient and flexible alternative that provides your customers the security they demand because of our strong credit position. The LOC guarantees that FHLB Boston will pay the public unit depositor, upon demand, should a member default on the deposit. This efficient, low-cost option allows members to retain securities for liquidity and other purposes. It also allows the public unit immediate access to its funds without having to liquidate securities that are normally pledged to them.

To secure public unit deposits, the member applies to FHLB Boston for the LOC. The member is the applicant while the public unit is the beneficiary. FHLB Boston issues the LOC on behalf of the member, in favor of the beneficiary. Our application process is easy, and we offer flexible terms and conditions.

Fixed Balance LOC

The Fixed Balance LOC is simple and easy to use. You specify a credit amount and term of the LOC based on anticipated deposit balances during the LOC term. Fees are invoiced in advance based on the credit amount.

Master Variable Balance LOC

The Master Variable Balance LOC provides a flexible, convenient, and cost-effective form of collateral for members with a large number of public-unit depositors. This single LOC may be used to collateralize deposits of multiple public-unit customers pursuant to a trust agreement between the member and a master trustee responsible for allocating the LOC across multiple customers and accounts. In addition to LOC fees charged by the Bank, members are responsible for paying any fees charged by the master trustee.

The Bank’s fees are billed in arrears based on the daily average of aggregate deposit balances over the preceding billing period (a calendar quarter or a sub-period in the event of LOC expiration or cancellation). Collateral and capital-stock purchase requirements are based on the full credit amount specified in the LOC application. Members must have a relationship with an approved master trustee before using the Master Variable Balance LOC.

Refundable Balance LOC

The Refundable Balance Letter of Credit is a flexible, cost-effective LOC that would account for balance fluctuations associated with state, local and other public unit deposit accounts.

Members can request a Refundable Balance LOC equal to the estimated highest balance in the public unit deposit account for terms of one month or greater. If the average daily balance in the account throughout the term of the LOC is below the original face amount of the Refundable Balance LOC, a portion of the fee is eligible for a refund to the member when the LOC matures (or annually, whichever occurs first). The Refundable Balance LOC provides added flexibility when bidding on public unit deposits and offers a collateralization option with the added benefit of the potential for a refund.

Variable Balance LOC

Some public unit deposit balances may fluctuate substantially over time. For such accounts, the Variable Balance LOC provides a flexible, cost-effective option that gives you the coverage you need. You can specify a credit amount equal to the estimated highest deposit balance during the term of the LOC. Each quarter, you would submit certifications of average daily balances in the account(s) covered under the LOC, which may be lower than the credit amount initially requested. The Bank invoices quarterly, in arrears, based on the certified average deposit balances.

While fees are based on the actual deposit balances over the preceding billing period (a calendar quarter or a sub-period in the event of LOC expiration or cancellation), collateral and capital stock purchase requirements are based on the full credit amount specified in the LOC application.

Providing Credit Support for Bonds

Construction companies and development businesses often partner with state housing and development agencies to issue tax-exempt or taxable bonds that fund public initiatives ranging from housing developments to community development projects. When your loan customer in the construction or development business is involved in this type of initiative, you may be asked to issue an LOC to directly pay principal and interest payments to the bondholders or "guaranty" your loan customer’s obligation to make principal and interest payments.

The bondholders require that your institution have a certain rating, but your institution may not have a rating. In such instances, the bondholders may still accept an LOC from your institution, but it must have a "wrap" by a highly rated bank.

A confirming LOC from FHLB Boston can satisfy that requirement. With this arrangement, you, the member, will issue your own LOC to the benefit of the bondholders. You promise to pay the bondholders in the event the "borrower" (bond issuer) defaults on its obligation to pay principal and interest to the bondholders. FHLB Boston will then issue a confirming LOC, also to the benefit of the bondholders, which promises to pay the bondholders if your institution defaults on its LOC.

To determine whether a bond transaction would qualify for a "wrap" from FHLB Boston, please contact your relationship manager.

Collateral and Capital Requirements

An LOC issued by FHLB Boston must be collateralized, and you may use any form of collateral that is acceptable for advances. There is also a requirement to purchase FHLB Boston capital stock, which is 25 basis points of the credit amount of the LOC.


Fees are based on the term of the letter of credit, and a minimum fee may be charged. A processing fee will be charged for confirming letters of credit issued in support of bond transactions. LOC fees are calculated and billed on an actual/360 basis. See the letter of credit pricing schedule .

Forms and Applications

In all cases, the Bank will process same-day effective date LOCs on a best efforts basis. We recommend submission by 12:00 noon. LOC applications may be submitted up to 30 days in advance of the effective date between the hours of 8:30 a.m. and 5:00 p.m.

Certain applications for PUD LOCs (Fixed Balance, Refundable Balance, and Variable Balance LOCs) must be completed in the Bank's Online Banking portal.

Applications for the Master Variable Balance (PUD) LOC and the Stand-by or Confirming LOC are available through the link below and may be emailed to LOC applications for purposes other than securing public unit deposits will be processed in a time frame to be determined on a case by case basis.

LOC application and other related forms

Sample Documents

External resources

For more information on using FHLB Boston letters of credit, please consult your relationship manager.

Rates Specials
Forms and Applications