by Cheryl Wondrasch
Very early in my career, my professional mentor and manager frequently made the comment “banks make money in spite of themselves”. I was in my mid 20’s, a financial analyst, and just learning about banking. To me, it seemed the opposite, we used complex concepts like funds transfer pricing, and credit allocations. How could smart people, that understood these topics, lose money?
Twenty years later, I’m beginning to see the wisdom of his comment. Hopefully, I have not upset my fellow finance managers in the industry. I have built my career around financial reporting and analysis. I have had the opportunity to be a financial manager in large and small institutions. The last eight years have been spent consulting on and installing customer, organizational, and product profitability systems.
So, what made me realize the wisdom of the comment? A great example is the recent trend in the financial services industry to evaluate the branch channel. Per a recent survey by Celent 55% of financial institutions were going to significantly change their branch structure. Here are the most important questions you need to ask yourself before changing your branch structure:
- Impact on loan and deposit balances and margin: What is the potential impact of losing customers? Which customers will we lose – single product, low revenue, or large profitable customers?
- Impact on non-interest income: Will the restructure of branches impact our ability to generate over the counter fees? Are they significant?