Posted September 20th, 2018 No Comments
MARGINAL COST OF FUNDS

Analyze your options before you fund

With interest rates on the rise and competition for deposits heating up,  it is important to understand your institution’s options for funding loans and growing your balance sheet. One of the best tools you can utilize to help maximize profitability is marginal cost of funds (MCOF).

Applying MCOF analysis will allow your institution to compare how different funding strategies affect the bottom line, ultimately choosing the option that incrementally adds the least to total funding costs. The simple MCOF formula is below.

MCOF captures the increase in fi costs for a business entity when it adds one more dollar of new funding.

When you consider offering a CD special or changing deposit rates, how much new money do you expect to bring in and how much do you expect to reprice from existing accounts? Using these assumptions, your institution can predict how offering a special or changing rates will affect net interest margin. You can compare this outcome with other alternatives such as brokered deposits or FHLBank funding options.

SIMPLE MARGINAL COST FORMULA:

 MARGINAL COST  =  CHANGE IN TOTAL COST OF DEPOSITS
                                        CHANGE IN QUANTITY OF DEPOSITS
   

TRENT MEYER
785.478.8215
trent.meyer@fhlbtopeka.com

 

Print                                  

Leave a Comment

Reply

Events Calendar
September Edition

MISSION STATEMENT


The mission of the Nebraska Credit Union League & Affiliates is to protect, promote and perpetuate the credit union movement in Nebraska.
What's Inside
Archives