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.
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