It is however the risks that banks run on the economic side of the equation. Banks -contrary to companies- cannot reduce their “costs” of production for the products they sell: risk products. They cannot reduce the reward to the depositors below the market level, otherwise they lose deposits. Banks’ input costs are fixed and their output income is depending on their own risk selection, but also on the state of an economy, in other words variable. Companies can adjust their input costs if sales do not materialise. Banks sell products which cannot be terminated during the contract.
