FRB Dallas Home » Banking »Discount Window »Seasonal Credit Program

Follow the Fed  |

Banking—Discount Window

Seasonal Credit Program

Overview

The Seasonal Credit Program (SCP) offered by the Federal Reserve Bank of Dallas assists smaller depository institutions (defined as under $500 million in deposits), in both urban and rural areas, in meeting the seasonal borrowing needs of their communities. The program provides a reliable source of funds for institutions that experience annual liquidity pressures of a seasonal nature. By relieving those pressures, the program allows the institutions to release more funds for lending into their local communities.

Under the program, your institution may obtain up to nine months of funding to satisfy cyclical credit needs. To qualify, a depository institution typically must:

• be in acceptable financial condition,
• demonstrate a recurring seasonal need for funds,
• have the seasonal need for funds persist for at least four weeks and
• have less than $500 million in total deposits.

The SCP was not designed to act as a substitute for core deposit growth. Therefore, the program also requires an institution to fund a portion of its seasonal need from its own resources. A graduated deductible equal to 2 percent of the first $100 million of average deposits, 6 percent of the next $100 million and 10 percent of the amount over $200 million is subtracted from estimated seasonal needs to meet this requirement. Because of the larger deductible, institutions with more than $500 million in deposits are normally unable to qualify for seasonal credit.

Completing the Application

Participation in this program requires prequalification. An application should be completed well in advance of the anticipated need for funds. As part of the initial application process, your institution must provide three years of monthly loan and deposit data. We will analyze this information to determine your eligibility, as well as the amount and duration of your seasonal credit line. You will be advised of our decision by telephone, with a letter to follow.

Modifying the Credit Line

Although the seasonal credit line is based on historical loan and deposit data, the flexibility exists to modify the amount and/or timing of credit lines when current-year seasonal conditions deviate from historical patterns. Reserve Bank staff are available to work with you in determining if your institution qualifies for a modification to its SCP credit line.

Seasonal Rate and Fees

The interest rate charged for SCP loans is market-based, reflecting the average of the federal funds rate and the rate on three-month CDs, rounded to the nearest five basis points. The rate is reset every two weeks and applies to all outstanding seasonal loans. You may call the Dallas Fed or check our web site to obtain current interest rate information.

Under the SCP, there are no commitment fees, stock purchase requirements or other expenses or penalties involved in setting up and maintaining a line of credit. Credit may be drawn down incrementally as needed; both partial and full prepayments are allowed without penalty. If the line is unused during the year, there is absolutely no cost involved.

Documentation Requirements

To qualify for any type of Reserve Bank credit, including SCP credit, your institution must complete certain basic legal documents, discussed in our Operating Circular 10. This includes such documents as a borrowing resolution, letter of agreement and signature authorities that must be completed prior to borrowing. Reserve Bank staff are available to assist you in completing these documents.

Pledging Collateral

All loans made by Reserve Banks must be secured by acceptable collateral. We accept a wide variety of collateral, including, but not limited to, U.S. government and agency obligations, municipal securities, CMOs, and commercial, consumer and real estate loans. Our credit analysts will be happy to discuss collateral options with you, including borrower-in-custody arrangements, and walk you through the pledging process.

Borrowing and Repayment

Once your SCP application has been approved and the necessary legal agreements and collateral are in place, an authorized individual from your institution may contact the Discount and Credit Department by telephone to request an advance against your institution’s monthly seasonal credit line. A credit will typically be made to your master account at the Reserve Bank on the day the advance is requested. An automatic debit is made to the same account on the date the loan matures. You may prepay your seasonal loan, either partially or in full, prior to maturity. Your institution may request advances or make payments from 8 a.m. until the close of Fedwire (typically 5:30 p.m. Central time), Monday through Friday. Except in unusual circumstances, credits and debits will post to your account at the close of Fedwire on the day of borrowing or payment.

Reporting Requirement

When borrowing under the SCP, you will be required to submit limited information (only six balance-sheet items) on a weekly basis (FR2046).

Program Restrictions

Funds obtained through the SCP cannot be used to increase your institution’s securities portfolio or net federal funds sales. While borrowing under the SCP, your institution must maintain a level of securities and net federal funds sales that is consistent with your normal operating pattern. Furthermore, the Federal Reserve Bank of Dallas reserves the right to significantly reduce or revoke an SCP line of credit if an institution is classified as a problem institution by a federal banking agency, if it becomes undercapitalized or if the use of seasonal funds is deemed inconsistent with the program’s purpose. The SCP is limited to depository institutions with total deposits of less than $500 million.

More Information

Additional information on Reserve Bank loan programs and policies is provided in the “Federal Reserve Discount Window” booklet and in Operating Circular 10. You may also access Discount Window information at www.frbdiscountwindow.org.

• Seasonal Credit Program Brochure