Bank Cost of Funds

Document Sample
Bank Cost of Funds Powered By Docstoc
					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

   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
   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 Simulation

   Money Market Savings
       Rate, % New Bus and Off Time Alloc., Dev
        Budget, Premises
       Has an effect on Balance, Trust Income
               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)

   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