TheBreeze, the reason relates to leverage and regulatory capital ratios. When CFC goes to the discount window it’s borrowing money, literally. When CFC pays 5.75% on a deposit, the deposit is, well… a deposit. From an income statement perspective, there’s no difference because the rates are similar (as you recognize). But one ratio that regulators look at closely is the ratio of loans to deposits. By raising more deposits – even though they are expensive deposits – CFC can keep its loan-to-deposit ratio at a lower level than if it borrows the funding. All else being equal, the regulators would prefer to see CFC using “deposit funding” – which they consider more “core” in nature – as opposed to “debt funding” – which is more “wholesale” in nature – in order to fund its assets.
