Seasonal Credit Program

Overview
The Federal Reserve’s seasonal credit program provides depository institutions that lack access to national money markets with a reliable source of credit to meet their communities’ peak seasonal funding requirements. Smaller institutions that experience fluctuations in deposits and loans—caused by construction, college, farming, resort, municipal financing and other seasonal types of business—frequently qualify for the seasonal credit program.

While banks of all sizes experience seasonal lending variability, the Fed’s seasonal credit program is available mainly to depository institutions whose total deposits are under $500 million. Under the program, qualified depository institutions may obtain credit lines for periods of up to nine months in order to meet their seasonal funding needs. Without funds from national money markets, institutions tend to accumulate large positions in short-term liquid assets, which they roll off during the peak seasonal period. Ready access to borrowed funds enables these institutions to carry fewer liquid assets during the off-season. This access releases more funds for lending in the local market during the year, and often allows higher rates to be locked in on longer-term investments.

Eligibility
Your institution must meet the following requirements to qualify for the seasonal credit program:

  • Must be in satisfactory financial condition;
  • Must have total deposits less than $500 million;
  • Demonstrate a recurring seasonal need for funds that persists for at least four consecutive weeks; and
  • Have executed borrowing documentation per Operating Circular #10 with the Reserve Bank.

Under the seasonal credit program, the institution must take care of a portion of its seasonal funding from its own liquidity resources. To ensure that an institution is meeting a portion of its needs from its own resources, an amount based on the institution’s deposits will be deducted from its estimated funding needs before arriving at its approved seasonal credit line. This deductible will be equal to 2 percent of the first $100 million average deposits in the preceding calendar year, 6 percent of the next $100 million, and 10 percent of the excess above $200 million.

Interest Rate & Fees
The interest rate charged on seasonal credit loans is a floating market rate calculated as the average of the previous two-week average federal funds rate and secondary market rate on 90-day large CDs, rounded to the nearest five basis points. The interest rate is reset every two weeks and is applied to all outstanding seasonal credit loans on the first day of the reserve maintenance period. Please refer to our website at www.frbdiscountwindow.org for the current seasonal credit rate.

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

Completing an Application
An application for the seasonal credit program should be completed well in advance of the anticipated need for funds. As part of the application process, your institution will need to provide us with up to three years of monthly loan and deposit data. The loan data should represent only loans to borrowers in the DI's local trade area, and should not include federal funds sold, marketable commercial paper, or participated loans. You will also be asked to provide the prior year’s securities owned plus federal funds purchased and sold data. We will analyze this information to determine your eligibility as well as the amount and duration of your approved seasonal credit line. Please contact our Discount Window staff at our toll free number (866) 226-5619 to request an application form.

Establishing a Line-of-Credit and Borrowing under the Program
Usually within a few days after receiving the application, we will advise you of the amount and duration of your approved seasonal credit line for the year. Normally, credit lines do not exceed nine months, and must be renewed each year.

Advances under the seasonal credit line are usually available on a weekly or 30-day maturity schedule. Shorter-term advances and other maturity schedules are available if a legitimate reason exists. Partial and full prepayments on outstanding loans are allowed at any time without penalty. When borrowing under the program, you must submit to us the weekly report titled “Selected Balance Sheet Items for Discount Window Borrowers” (FR2046).

Institutions are not permitted to use the program to increase sales of federal funds or to purchase other assets. However, net sales of federal funds are appropriate, as long as they are consistent with the institution's normal operating pattern. The maximum levels of net fed funds sales and investments allowed while borrowing under the program are established during the qualification process.

All loans made by the Reserve Bank 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. We would be happy to discuss collateral options with you and walk you through the collateral pledging process.

How to Contact Us
For additional information on this or any other credit program, collateral arrangements, or borrowing requirements, please contact our Discount Window staff at our toll-free telephone number (866) 226-5619.

January 2005