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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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Presentation Transcript
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