Bank cost of funds
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Bank Cost of Funds. Cost of Funds. G & K Chp. 13 Structure of Liabilities Cost of Components. Structure of Liabilities. Demand Deposits (Non-Int & MMDA) Savings (Regular, Money Mkt Svgs) Small Time Deposits (CDs) Large Time Deposits (Jumbo CDs) Fed Funds & Repos. Pricing Policy.

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Bank Cost of Funds

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Bank cost of funds

Bank Cost of Funds


Cost of funds

Cost of Funds

  • G & K Chp. 13

  • Structure of Liabilities

  • Cost of Components


Structure of liabilities

Structure of Liabilities

  • Demand Deposits (Non-Int & MMDA)

  • Savings (Regular, Money Mkt Svgs)

  • Small Time Deposits (CDs)

  • Large Time Deposits (Jumbo CDs)

  • Fed Funds & Repos


Pricing policy

Pricing Policy

  • Explicit

    • Rates on MMDA, MM Svgs, Small CDs

  • Implicit

    • Amounts of Jumbo CDs and Fed Funds used

    • Fees on Reg Ckg Accts

    • Fees on Comm’l Accts and CC Processing


Pricing in simulation

Pricing in Simulation

  • Comm’l Deposits

    • Chg/Item, Credit per $100, CC Fee, % New Bus and Off Time Alloc.

    • Has an effect on Balance, S/C Income, Loan Commitmts & CC Income

  • Regular Deposits

    • Chg/Item, Credit per $100, % New Bus and Off Time Alloc., Dev Budget, Premises

    • Has an effect on Balance, S/C Income, Trust Income


Pricing in simulation1

Pricing in Simulation

  • Money Market Savings

    • Rate, % New Bus and Off Time Alloc., Dev Budget, Premises

    • Has an effect on Balance, Trust Income


Cost of funds1

Cost of Funds

  • Calc Avg Cost of Funds and compare with Prime Rate on Pg. 7

  • Lower Cost of Funds means able to offer lower loan rates  Attract more business

  • Cost of Funds differs from WACC as specific acct. by acct. tally of funds costs. WACC is a composite of equity and debt expectations for return (see Pg. 23 for WACC calculation)


Cost of funds handout

Cost of Funds (Handout)

  • Base is Net Deposits

    • Total Dep+FFPurch+FRB-Cash&DueFrom

  • Costs are Int and Non-Int Expenses

    • Total Int Paid (excluding Cap Note Int)

    • Non-Int Expenses from each account times its related expense multiplier (take as given)

    • Less Net Service Charge Income

  • Cost of Funds = Costs * 4 / Base


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