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How A Bank Makes Money

To some of you this will be totally elementary,

but it’s still good to get a refresh.

Via a Deutsche Bank report, here’s a breakdown of bank revenues based on the industry average.

Obviously,

the biggest source of income is Net Interest Income.

chart of the day, bank revenue breakdown, may 2011

Here’s Deutsche’s definition:

The largest component of a bank’s revenue is net interest income (NII)
– which accounts for about 65% of revenues on average.

NII is the dollar difference between the interest earned on a bank’s earning assets
(i.e. loans, securities and other interest earning investments)
and the funding cost of a bank’s liabilities
– which consists of deposits and borrowings.

NII is driven by volumes (i.e. assets) and spreads (net interest margin)

Source

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