Sponsors (3)
The bill restores and expands use of FHLB letters-of-credit to support tax-exempt bond financing—potentially lowering borrowing costs and increasing liquidity—while trading greater regulatory discretion for increased uncertainty and potential taxpayer exposure to credit risk.
State and local issuers, guarantors, and projects financed with tax-exempt bonds gain continued access to Federal Home Loan Bank (FHLB) letters of credit as eligible liquidity support, which can lower borrowing costs and help finance public projects.
Financial institutions and holders of tax-exempt bonds gain greater flexibility because FHLB letters of credit can be used without the prior 2010 sunset restriction.
Regulators and regulated entities gain adaptability because the FHFA Director can set the safety-and-soundness standard, allowing updates to reflect current market conditions and evolving risks.
Taxpayers and federally linked entities could face increased credit-risk exposure if the FHFA Director relaxes standards over time, potentially raising public losses or calls on support.
Bondholders and taxpayers may face uncertainty because delegating the safety-and-soundness standard to the FHFA Director reduces statutory clarity about minimum protections.
Smaller issuers and local governments could face competitive disadvantages if FHFA updates favor larger or better-capitalized institutions, increasing costs or limiting access to credit for smaller borrowers.
Based on analysis of 4 sections of legislative text.
Removes a past expiration on FHLB letters of credit for tax-exempt bonds and lets the FHFA Director set an ongoing safety-and-soundness standard for future guarantees.
Changes how Federal Home Loan Bank (FHLB) letters of credit can be used as guarantees on tax-exempt municipal bonds by removing an expired time limit and replacing a fixed statutory safety standard with a safety-and-soundness standard set by the Director of the Federal Housing Finance Agency (FHFA). The amendments apply to guarantees provided after the law takes effect, shifting some technical eligibility criteria from statute to FHFA rulemaking and supervision.
Introduced February 26, 2026 by Catherine Marie Cortez Masto · Last progress February 26, 2026