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What is marginal cost funding means?

Updated: 11/1/2022
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13y ago

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Marginal Cost funding is the difference in balances when changing a funding rate. An example would be:

A. I have 1 Million dollars at 3% and want to change my funding rate to 2%. When I do this I should expect some rate sensitive money to leave due to the lower rate. Let's say that 50% of the money leaves and now there is 500k at 2%. The marginal cost is the difference between these two options. It could be an added cost or as in this example a marginal effect that is a cost savings, but also a lost funding balance of 500k.

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Q: What is marginal cost funding means?
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