It has already been pointed out that the greater portion of a bank's profits is derived from the difference between the interest on its deposits and its loans. The gross profit, therefore, can be found roughly by a study of the interest-bearing assets of a bank and it may be safely assumed that even in the best of years a bank can seldom make more than between five and six per cent gross on its total assets; that is, inclusive of exchange and all other profits. In the statement of the "Percentage Bank" the interest earned on the various assets may be roughly estimated, as follows:

Securities

$7.59

at

4 1/2 %

.34

Call Loans

8.97

5 %

.45

Current Loans......

63.00

6%

3.78

Real Estate

2.07

5%

.10

Sundry Profits, Exchange, etc...

.58

Making a Total of

5.25 or 5 1/4 %

Turning to the liability side, $88.31 is due to the public, of which it is safe to assume $60 is interest-bearing, absorbing $1.80 of the gross profits. The actual net profits are $1.22. The difference, or $2.23, has therefore been used for expenses, including allowance for bad debts. These figures are of course intended to be suggestive, not conclusive. So many features enter into expense distribution and the gross earnings of banks that it is impossible to establish any criterion. Some of the English banks publish the amount of their expenses, but this serves no useful purpose unless other data is also furnished. The fact remains that Canadian banks are confronted with a very serious and steady diminution in net profits owing to competition on the one hand, and constantly increasing operating expenses and taxation on the other. This situation must be met either by increasing the charges or decreasing the expenses. The former is a last resort and there remains the necessity for a systematic study of costs with a view to reducing expenses and eliminating accounts or transactions which have hitherto been a source of loss.

Review

What is a bank statement primarily intended to show?

Why is it unwise for both the bank and the public to allow savings deposits to be used as checking accounts?

In what sense are call loans in Canada not call loans in the strict acceptance of the word?

How will the central gold reserve affect the standard of computing the strength of a bank in point of reserves?

How may a bank's gross profits be determined?