FI 413 Lecture Notes - Lecture 8: Asset, Interest Expense, Profit Margin
Document Summary
Readings: pages 22-32 in the course pack http://www. wsj. com/articles/credit-unions-community-banks-duke-it-out-over-planned-rule- Yield on earning assets yield %/earning assets. Total interest income as a percent of average earning assets. Earning assets are assets that earn interest. High yield is attractive but it might also indicate that the borrow pool is high risk. Cost of funding earning assets - annualized total interest expense on deposits and other borrowed money as a percent of average earning assets. Net interest margin (nim) total interest income less total interest expense as a percent of average earning assets. Smaller banks get better rates but big banks rates are decreasing. Crude measure of a profit margin between cost of raising funds and the earnings from lending out those funds. A bank that specializes in lower risk loans, such as residential mortgages, will probably have a lower net interest margin (nim) than the average bank. Not sure if it will be more profitable it off sets each other.
