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Echo Partners Community Bank Blog

    Don’t mistake balances for profits

    [fa icon="clock-o"]} [fa icon="user"] Howard Lothrop [fa icon="folder-open'] deposit profitability

    Blue & Yellow Tape MeasureDon’t mistake balances for profits.

    It’s easy to do. We’re so used to thinking of deposits using an aggregate measure like balances. We convince ourselves that balances are the be-all and end-all of deposits. As if balances told the whole story.

    The only problem is it’s just not true.

    Balances measure deposit quantity while profits measure deposit quality. I don’t know about you but I’d choose more profits over more balances any day. After all we can always get more funding but we can’t always whip up more profits.

    In a perfect world high balances would mean high profits, but we’re not living in a perfect world.

    Instead we’re in a world where bank staff rushes to offer price concessions to big depositors while depositors drop excessive numbers of high-cost transactions on us. Sometimes they work hard just to keep us from earning a fair profit.

    What’s a banker to do?

    The answer is to calculate instrument-specific P&L statements on each and every account. That way you’ll know on the front end just how profitable (or not) any given customer is.

    Once you know their profitability it’s a small step to knowing exactly how to handle almost any customer situation. With better info bankers make better decisions.

    Do you want to grow your bank profits with little to no risk? Click Here to  Discover How
    Howard Lothrop

    Written by Howard Lothrop

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