- Bank models begin with Assets: Unlike most companies in which the P&L drives the balance sheet, banks require asset-driven financial models where the balance sheet drives the P&L.
- Bank revenue is driven by interest rates: Interest income is the principal revenue source driven by loan assets such as real estate and commercial loans with varying interest rates.
- Bank expense planning: Interest expense, driven by deposits and other borrowings, offsets interest income on the P&L to derive a net interest line, also known as margin.
- What-if analysis for banks: In addition to analyzing trends in deposits and borrowings, banks need to analyze the impact of interest rate changes both short and long-term.
Banking financial models have unique planning requirements.
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Banking
