There are a great many factors entering into what constitutes a profitable account to a bank. The amount of credit balance maintained is not the principal factor to be considered, but the per item cost of the entries. In other words, an account with a balance of only $200, with a few entries, can easily be more profitable to a bank than one with a balance of $1,000 or more, but with a large number of checks, deposits and outstanding items.
In analyzing accounts the following questions should be considered:
(a) Is the account producing a profit?
(b) Is the account handled at a loss?
(c) If the latter, exactly what increase of balance or other change of conditions governing the account will change the loss to a profit? Tho an account may be operated at an apparent loss it frequently happens that there are collateral advantages which warrant a continuation of the arrangement.
(d) If the account is profitable, is the bank justly entitled to a larger profit than now obtained?
(e) Is the depositor entitled to any additional concessions?
In considering these points the following are axiomatic :
(a) In order for a deposit account to be profitable the balance must be a credit balance.
(b) Any account is profitable if the income from it exceeds the expense of keeping it.
(c) In determining whether or not an account is profitable the amount of credit balance maintained is not necessarily the principal factor to be considered. In the valuation of an account the amount of the balance is of secondary consideration as compared with the per item cost.
(d) In reviewing an account, the minimum weekly credit balance is the one that determines the loaning value of the balance. Care should be taken to discriminate between the value of an average balance and a steady balance; the former, if a violently fluctuating account, is valueless.
(e) Discount on loans and trade bills, as well as interest on debit balances, should not be taken into consideration in this connection. The net discount or interest earned is regarded as a part of the profit accruing from the general loanable funds of the bank and therefore cannot be regarded as a benefit derived from an individual account, which receives due credit for the amount of balance maintained on deposit.
(f) In considering unprofitable accounts, one point should always be looked into, especially in the case of accounts in newly established branches. This consideration is whether or not the actual loss to the bank in carrying the account is less than the amount of fixed charges which such an account is carrying.
(g) General conditions of policy must govern a bank in the consideration of cost figures, and the introduction of a cost system does not imply the elimination of this element. It does mean, however, that in deciding upon a concession in any individual case, the bank will have an exact knowledge of the costs and earnings of the account and will know exactly what it is granting and the actual cost thereof.
(h) It is important to bear in mind that an apparently large balance is not necessarily remunerative. It may be partly, wholly, or more than offset by items in transit or process of clearing, so that without an accurate analysis, a customer's balance as it appears on the ledger may be a very deceptive measure of the value of the account.