Banking and Finance Law Daily Wrap Up, COMMUNITY DEVELOPMENT—ICBA backs legislation to allow FHLBs to issue letters of credit, (Apr 2, 2026)

By Shashi Kant, BALLB, LL.M.

The organization says the MINT Act would expand municipal financing tools and improve access to capital for local infrastructure projects.

The Independent Community Bankers of America (ICBA) expressed support for legislation that would authorize Federal Home Loan Banks to issue letters of credit, stating that the change would expand financing options for municipalities and enhance community banks’ ability to support local development projects. In letters to congressional sponsors, ICBA endorsed the Municipal Investment and Neighborhood Transformation Act (MINT Act), introduced as H.R. 7769 and S. 3941, which would permit FHLBs to provide letters of credit in connection with municipal securities and other public finance obligations.

Legislation would expand FHLB authority in municipal finance. The MINT Act would amend the Federal Home Loan Bank Act to allow FHLBs to issue letters of credit to support municipal bond issuances, including obligations of state and local governments. Letters of credit are commonly used in municipal finance as a form of credit enhancement, providing investors with additional assurance of repayment and helping issuers obtain more favorable borrowing terms. By allowing FHLBs to offer these instruments, the legislation would introduce an additional source of credit support in the municipal market, which is currently dominated by a limited number of large financial institutions.

ICBA says measure would benefit community banks and local borrowers. In its letters supporting both the House and Senate versions of the legislation, ICBA said the proposal would strengthen community banks’ ability to participate in municipal finance by expanding access to credit enhancement tools. The group stated that community banks often lack the scale to provide letters of credit directly and instead rely on larger institutions, limiting their role in public finance transactions. According to ICBA, enabling FHLBs to issue letters of credit would help level the playing field by providing community banks with an additional channel to support municipal issuers. The organization emphasized that the change would particularly benefit smaller communities and rural areas, where financing options may be more limited. ICBA also noted that the proposal is consistent with the mission of the FHLB system, which is to support housing finance and community development. The group said that improving municipal financing capabilities can contribute to broader economic growth, infrastructure investment, and local development.

Letters highlight competition and cost benefits. ICBA’s letters further state that expanding FHLB authority would increase competition in the market for municipal letters of credit. The group argued that introducing FHLBs as an additional provider could reduce costs for municipalities by lowering fees associated with credit enhancement and improving access to capital markets. The letters also indicate that the proposal could enhance market stability by diversifying the sources of credit support available to municipal issuers. By reducing reliance on a small number of large banking institutions, the legislation could help mitigate concentration risks in the municipal finance market.

Legislative context and next steps. ICBA urged Congress to advance the legislation, stating that allowing Federal Home Loan Banks to issue letters of credit would expand financing options for municipalities and enhance community banks’ ability to support public-sector projects. The legislation is currently pending in both chambers of Congress.

Companies: Independent Community Bankers of America

LegislativeActivity: BankingOperations CommunityDevelopment Loans Mortgages SecuritiesDerivatives