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Cost
of Funds Index (COFI)
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. Other Indices: CODI,
CMT, Libor, Prime
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