A notable example of the benefits of FHLBank San Francisco letters of credit comes from Nevada Bank & Trust. They requested a letter of credit to secure public unit deposits (PUDs) from depositors like school districts, county hospitals and other healthcare facilities, county power/utility companies, local city and county government, county conservation, and chambers of commerce.

These deposits are typically well over the FDIC-insured amounts, requiring collateralization to secure the amount in excess. Securities are often used as collateral, but securing collateralization for deposits of additional funds could take a day or two to pledge, meaning the customer would have to wait a day or two to move funds.

The transition to a letter of credit has simplified our operations while maintaining the security and confidence that our public depositors require.

Adam Markarian

Chief Financial Officer

In addition, the Nevada State Treasurer requires daily reporting on securities collateralizing PUDs. Market value of securities can change frequently, adding to the administrative burden of using securities as collateral. The state also accepts irrevocable letters of credits to collateralize PUDs, and as a member of the FHLBank San Francisco, Nevada Bank & Trust has access to cost-effective and efficient letter of credit issuance.

By providing greater flexibility and the online, streamlined issuance process for PUD letters of credit, it is easier for FHLBank San Francisco members to support increased balances from public entities. With a letter of credit as collateral, Nevada Bank & Trust has the ability to receive the public funds the same day, making it easier to work with their public customers and the State of Nevada.

Adam Markarian, Chief Financial Officer of Nevada Bank & Trust added, “Partnering with FHLBank San Francisco has provided our bank with a more efficient and flexible approach to collateralizing public unit deposits. The transition to a letter of credit has simplified our operations while maintaining the security and confidence that our public depositors require. This change not only reduces administrative burdens but also enhances our ability to manage liquidity effectively.”

Their collateral is now centralized with FHLBank San Francisco, giving them ready access to funds through advance and letter of credit structures and flexibility to manage liquidity efficiently.