Page 1 of 1
calculating the bank's cost of fund
Posted: March 30th, 2007, 3:43 am
by lawho
any idea what should go into calculating the Cost of Funds of a bankand how to go about ittks
calculating the bank's cost of fund
Posted: March 30th, 2007, 4:04 pm
by cbr86
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?
calculating the bank's cost of fund
Posted: April 2nd, 2007, 12:00 am
by Aaron
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.
calculating the bank's cost of fund
Posted: April 2nd, 2007, 3:14 am
by lawho
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?