Cost of Funds Index (COFI)
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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 Eleventh District has been published by the
Federal Home Loan Bank
of San Francisco since August 1981. Currently more than one half of the
savings institutions loans made in California are tied to the 11th
District Cost of Funds (COF) index.
The Federal Home Loan Bank's 11th District is comprised of saving
institutions in Arizona, California and Nevada.
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.
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