Chapter 14 - International banking. This chapter examines international banking - the banking practices, regulations, and market conditions by which American banks compete in the global marketplace and foreign banks operate in the United States. | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 14 BANK MANAGEMENT AND PROFITABILITY Bank Earnings: Net Interest Income Loan interest and fees represent the main source of bank revenue, followed by interest on investment securities. Interest paid on deposits is the largest expense, followed by interest on other borrowings. Net interest income is the difference between gross interest income and gross interest expense. This margin is relatively stable because the interest rates banks earn and pay are largely set by the market. Bank Earnings: Provision for Loan Losses Provision for loan losses is an expense item that adds to a bank’s loan loss reserve (a contra-asset account). Banks provide for loan losses in anticipation of credit quality problems in the loan portfolio. Loans are written off against the loan loss reserve Bank Earnings: Non-interest income and expense Noninterest income includes fees and service charges. This source of revenue has grown significantly in importance. Noninterest expense includes personnel, occupancy, technology, and administration. These expenses have also grown in recent years. Bank Performance Trends in profitability can be assessed by examining return on average assets (net income / average total assets) over time. Another measure of profitability is return on average equity. In the mid- and late-1990s, bank profitability improved significantly. Dilemma: Profitability vs. Safety One way for a bank to increase expected profits is to take on more risk. However, this can jeopardize bank safety. For a bank to survive, it must balance the demands of three constituencies: shareholders depositors regulators Each with their own interest in profitability and safety. Solvency and Liquidity Solvency: Maintaining the . | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 14 BANK MANAGEMENT AND PROFITABILITY Bank Earnings: Net Interest Income Loan interest and fees represent the main source of bank revenue, followed by interest on investment securities. Interest paid on deposits is the largest expense, followed by interest on other borrowings. Net interest income is the difference between gross interest income and gross interest expense. This margin is relatively stable because the interest rates banks earn and pay are largely set by the market. Bank Earnings: Provision for Loan Losses Provision for loan losses is an expense item that adds to a bank’s loan loss reserve (a contra-asset account). Banks provide for loan losses in anticipation of credit quality problems in the loan portfolio. Loans are written off
