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.
