Reminder: FHLBank Chicago Activity Stock Requirements for Letters of Credit and MPF Products

  • April 23, 2021

Back in November 2020, we announced a capital stock requirement for letters of credit and Mortgage Partnership Finance® (MPF®) Traditional products. Please note we will begin assessing these activity stock requirements effective May 3, 2021.

Enhancing Your Dividend Benefit
The expanded assessment of a B1 activity stock requirement to encompass letters of credit and MPF on-balance sheet products provides members with an increased opportunity to hold B1 activity stock, which currently pays a higher dividend than B2 membership stock. The higher rate has the effect of reducing the cost of our products where a B1 activity stock requirement is assessed, thereby rewarding members that support the cooperative through their use of those products.

The potential benefit of the current dividend rate of 5% paid on B1 activity stock is illustrated in the two charts below for letters of credit* and MPF on-balance sheet products**:

 

Letters of Credit

Calculation

Class B1 Dividend Rate

5.00%

 

Interest on Excess Reserves (IOER)^

0.10%

 

Net Dividend Benefit

4.90%

A

Capital Stock Requirement

0.10%

B

Incremental Benefit of Dividend

0.0049%

AxB

*The illustration is not necessarily indicative of future dividend rates, spreads, or the incremental benefit of the dividend. Future dividends remain subject to declaration by the Federal Home Loan Bank of Chicago (FHLBank Chicago) Board of Directors.
^Assumes IOER remains at this rate for the duration of the capitalized product.

 

MPF

Calculation

Class B1 Dividend Rate

5.00%

 

5 Year Treasury Rate^^

0.80%

 

Net Dividend Benefit

4.20%

A

Capital Stock Requirement

2.00%

B

Incremental Benefit of Dividend

0.08%

AxB

**The illustration is not necessarily indicative of future dividend rates, spreads, or the incremental benefit of the dividend. Future dividends remain subject to declaration by the FHLBank Chicago Board of Directors.
^^As of 4/20/21, assumes 5Y Treasury remains at this rate for the duration of the capitalized product.


How will the stock requirements work?
For letters of credit, the new stock requirement is 0.10% of the notional amount of all letters of credit outstanding on behalf of a member. The new stock requirement will apply to all new letters of credit issued on or after May 3, 2021, and all existing letters of credit as of the time of auto-renewal (for evergreen letters of credit), term extension, or amendment for notional amount increase occurring on or after May 3, 2021. In connection with these changes, the Board of Directors is amending our capital plan, effective May 3, 2021, to increase the lower end of the range for the letters of credit percentage from 0 to 0.10%.

For MPF on-balance sheet products, the new activity stock requirement is 2% of the principal loan amount sold into the Master Commitment. This new stock requirement will apply to loans funded under new Master Commitments that are executed on or after May 3, 2021. The requirement will NOT apply to MPF Traditional loans that are funded into Master Commitments executed before May 3, 2021. Capital stock requirements will be calculated daily at the end of the day.

If your institution’s Master Commitment is not expiring until later in 2021 and you wish to participate in the new activity stock requirement sooner, you can request a new Master Commitment earlier by contacting your Sales Director.

How can I learn more?
We hosted webinars during the first quarter of 2021 to review these changes and to explain in more detail how the requirements will be applied, how stock will be processed, and the benefits you can obtain through Class B1 activity stock ownership. You can find recordings of these webinars in eBanking under Solutions > Weekly Market Update > March 11, 2021 Capital Plan Webinar. We also created a Resource Document for our members that goes over many operational details of the letters of credit capital stock requirement.

If you have any questions about the upcoming changes or if we can be of assistance in any way, please contact your Sales Director.  

Contact Us

Please direct all media and investor inquiries to:

Erin Kopecky
Vice President, Director, Communications
ekopecky@fhlbc.com
3
12.833.5323