any idea what should go into calculating the Cost of Funds of a bankand how to go about ittks

range of answers (just guessing here):Basel II-kind-of-answer: portfolio expected loss and unexpected loss?EMH kind of answer: portfolio Beta?Practical kind of answer: whatever the treasury can borrow for (libor + rating spread)Or am I missing the point here?

As cbr86 says, there are many possible answers.For one thing, a bank has many sources of funds. Each has not only a different cost, but different types of cost. It can repo securities, borrow money in various ways, accept deposits on various terms, sell equity and engage in a variety of other transactions.Typically when people say "cost of funds" rather than "cost of capital," they mean the short-term interest rate plus some general-purpose adjustment for the effect on the bank's overall risk. The adjustment depends on the transaction. That is, the cost of funds for making a residential mortgage is not the same as the cost of funds for doing a reverse repo or investing in a private equity deal.

do we just include interest in the cost of funds or must we include say fees and other expense incurred in raising funds e.g. through the issue of a bond etc?