| Cost of Funds Index (COFI) The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.
The 11th
District Cost of Funds is more prevalent in the West and the 1-Year Treasury Security
is more prevalent in the East. Buyers prefer the slowly moving 11th District Cost
of Funds and investors prefer the 1-Year Treasury Security.
The monthly
weighted average 11th District has been published by the Federal Home Loan Bank
of
The Federal
Home Loan Bank's 11th District is comprised of saving institutions in
Few people
who use and follow the 11th District Cost of Funds understand exactly how it is
calculated, what it represents, how it moves and what factors affect it.
The predecessor
to the 11th District Cost of Funds index was the District semiannual weighted average
cost of funds published for a six month period ending in June and December. The
San Francisco Bank was the first Federal Home Loan Bank to publish a monthly cost
of funds index.
The funds
used as a basis for the calculation of the 11th District Cost of Funds index are
the liabilities at the District savings institutions: money on deposit at the institutions,
money borrowed from a Federal Home Loan Bank (known as advances) and all other money
borrowed. The interest paid on these types of funds is the cost of these funds.
The ratio
of the dollar amount paid in interest during the month to the average dollar amount
of the funds for that month constitutes the weighted average cost of funds ratio
for that month.
The average cost of funds is said to be weighted because the three kinds of funds and their costs are added together before a ratio is computed rather than calculating averages individually for the three sources and using a simple average of the three ratios. This gives the greatest weight to the interest paid on deposits, and explains the delayed reaction of the index to rising fixed rate mortgages. |
