Sponsors (4)
The bill restores FHLB letters-of-credit and liquidity support for tax-exempt bond markets—lowering borrowing costs and increasing financing flexibility—while shifting key safety-and-soundness judgment to the FHFA Director, which raises uncertainty and potential taxpayer and small-issuer risk if standards are relaxed.
State and local issuers, guarantors, and holders of tax-exempt bonds (and the financial institutions that back them) regain use of FHLB letters of credit and continued FHLB liquidity support without the prior 2010 sunset restriction, increasing financing flexibility and potentially lowering borrowing costs for projects financed with tax-exempt bonds.
Delegating the safety-and-soundness standard to the FHFA Director allows supervisory standards to be updated over time to reflect current market and risk conditions, enabling more responsive regulation.
Giving the FHFA Director discretion over the safety-and-soundness standard reduces statutory clarity and could create legal and operational uncertainty for bondholders and other market participants about minimum protections.
Loosening explicit statutory limits and allowing standards to be changed over time could increase credit exposure for taxpayers and federally linked entities if the FHFA adopts looser requirements, shifting more risk to the public.
Smaller issuers (and small-government borrowers) may face competitive and compliance uncertainty if future FHFA standard changes favor larger or better-capitalized institutions, potentially disadvantaging smaller players.
Based on analysis of 4 sections of legislative text.
Removes an expiration on FHLB letters-of-credit eligibility for tax-exempt bonds and lets the FHFA Director set the safety-and-soundness standard for future guarantees.
Introduced February 26, 2026 by Catherine Marie Cortez Masto · Last progress February 26, 2026
Changes federal tax-law rules about Federal Home Loan Bank (FHLB) letters of credit used to secure tax-exempt municipal bonds. It removes a past expiration date that had limited which letters of credit could qualify, and it replaces a fixed statutory safety standard with a flexible “safety-and-soundness” standard set by the Director of the Federal Housing Finance Agency (FHFA). The new rules apply to FHLB guarantees made after the law takes effect.