| 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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