Letter of Credit Pledge for Public Deposits

The Letter of Credit Pledge for Public Deposits (LOC) program assists financial institutions that do not have enough securities to pledge for public deposits. By pledging loans to BND, BND can issue an LOC directly to the public entity. This allows the financial institution to free up securities that can then be pledged to other entities for additional liquidity purposes.

In order to receive an LOC, a North Dakota financial institution submits a written request to BND for the LOC. This request includes the name of pledgor, name of pledgee, term of LOC and dollar amount of LOC requests. The LOC may be pledged to pledge pools.

Total outstanding LOC’s for Public Deposits are limited to the financial institution’s total equity. LOC fees will be 11.5 basis points per annum (actual/360) with a minimum charge of $250 per LOC.

Before an LOC for public deposits is issued, the following documents must be executed and on file at BND:

  • An Irrevocable Standby Letter of Credit Reimbursement Agreement outlining terms and conditions of an LOC and a certified copy of Board of Directors minutes indicating approval of this agreement.
  • A Certificate of Available Eligible Collateral, signed by authorized bank officer certifying that all loans pledged are not encumbered by prior lien, pledge, participation, or any other form of encumbrance.
  • The collateral pledged was originated by customer, and is serviced and owned by the same, and therefore is not encumbered by any prior lien, pledge, participation, or any other form of encumbrance.
  • No collateral pledged is 60 days or more past due, on nonaccrual or in foreclosure.
  • The borrower of collateral pledged is not an officer, director, attorney or agent of the customer.
  • No construction or operating loans are included.
  • No loans included are currently classified as substandard, doubtful, or loss, either internally or by a regulator.
  • Collateral pledged will be of the following type and percentage of collateral coverage:
    • Government guaranteed portion only – 105% (SBA loans do not qualify)
    • Single family, Conventional, and VA – 120%
    • Commercial, Farm, and Multi-family term debt – 150%
  • A current list of collateral pledged must be sent to BND every 60 days along with an executed copy of the Certificate of Available Eligible Collateral, during the term of the LOC. Substitutions also require this certificate.

Substitutions are required for paydowns, payoffs or other changes in eligibility. BND reserves the right to review the collateral prior to acceptance and to perform periodic collateral reviews to insure compliance with collateral requirements.

All LOCs are approved by Accounting or Treasury personnel and reported to the Investment Committee. Exceptions are approved by the Treasury Services Manager and the Investment Committee.