# The Bank Investor's Handbook Author: [[Nathan Tobik]], [[Kenneth Yellen]] ## Review The book makes a case for why investors should own bank stocks, the basic considerations an investor has to account for when investing in US banks, and some basic strategies. The balance sheet is the most important part of a bank because, unlike most other companies, a bank makes its money through allocation of the balance sheet. For this reason its important to understand the assets and liabilities of the bank. The composition and quality of assets determines the profit potential: the types of loans & securities, the borrowers, the maturity profile, and the liquidity. The liability side of the balance sheet is equally important because it can be equated to the means of funding the assets. Deposits are the simplest and cheapest way of funding loans and the higher up the capital structure you go the more costly the means of funding. Asset liability mismatch is an important risk for bank balance sheets, and so is the risk of borrower default. The section discussing a basic analysis of non-performing loans and defaults was helpful. The book looks at banks as intermediaries and therefore puts a lot of emphasis on a banks' need to attract deposits in order to fund loans. I am skeptical this it works this way (reserves are only needed if deposits are transferred to other banks, and in that case why can't banks borrow reserves from a central bank?). So although I think there is too much emphasis on attracting customer deposits (which implies attracting reserves/cash), the rest of the book made sense as an introduction to banks for a novice investor. ## Key Ideas ## Related - [[Banking]] - [[Bank Investing]]