WASHINGTON -- To save money, the Office of Thrift Supervision has proposed dropping its monthly cost of funds index.

The Monthly Median Cost of Funds, created in 1982, shows the median interest rate thrift institutions pay on deposits and borrowed money. Institutions use the index to figure changes in adjustable rate mortgages.

However, OTS said Monday that other, more popular indices may have rendered the agency's index relatively useless.

Dropping it would save the agency and the thrift industry money. OTS estimated that thrifts spend $400,000 a year reporting the interest rate data while the agency spends $100,000 annually to compile and distribute the index.

As an alternative to dropping the monthly index, OTS also proposed using a smaller, randomly selected sample of thrifts. These thrifts would be rotated every 12 to 18 months to cut back the reporting burden on the industry as whole.

Another option would expand the number of reporting institutions by adding the 16 thrifts that are insured by the Bank Insurance Fund. This plan addresses the concern that the OTS monthly index fell out of favor because a decreasing number of thrifts contribute to it. Those 16 BIF-insured thrifts hold about 10% of the industry's total assets.

However, because it is a median index, OTS said including those big thrifts "would have only a slight effect on the index results."

The public has 30 days to express an opinion on these three options. The OTS will continue to compile a quarterly interest rate index.

The Federal Home Loan Bank Board of San Francisco also publishes the widely used Eleventh District Cost of Funds Index every month.

However, a recent survey showed that nearly 58% of new ARM loans in March were pegged to one-year Treasury bill rates.

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