Marginal Cost Of Funds
Barron's Banking Dictionary:
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Marginal Cost of Funds
Incremental cost or differential cost of each additional dollar borrowed. It is the cost of funding one more loan, assuming that the cost of funds remains unchanged. Under conventional cost accounting theory, the marginal cost of acquiring new funds decreases as scale economies are achieved. Put another way, the marginal cost of funds varies inversely to the capital base of financial intermediaries because the larger banks, which as a rule have larger loan portfolios, can tap into the capital markets and money markets with greater ease than smaller ones. See also Pooled Cost of Funds.
Investopedia Financial Dictionary:
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Marginal Cost Of Funds
The incremental cost of borrowing more money to fund additional asset purchases or investments. In its simplest calculation, the marginal cost of funds is simply the interest rate on the new loan balance. Marginal cost of funds is often confused with the average cost of funds, which would be calculated by computing a weighted-average of all the combined loans’ interest rates.
Investopedia Says:
While many investors only think of the marginal cost of funds in terms of money borrowed from someone else, it's also important to think of it in terms of money borrowed from oneself or a company's own assets. In this instance, the marginal cost of funds is the opportunity cost of not investing existing funds elsewhere and receiving interest on it. For example, if a company uses $1,000,000 of its own cash to build a new factory, the marginal cost of funds would be the rate of interest it could have earned if it had invested that money instead of spending it on construction.
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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Mentioned in
Hurdle Rate
(in banking)
Pooled Cost of Funds
(in banking)
Cost Accounting
(in banking)
Transfer Pricing
(in banking)
» More