Overview
Net Interest Income
Possibly the most important measure of the performance of the asset/liability side of the bank is the net interest income. The goal of the bank is to borrow money at a low rate and lend at a higher rate. The net interest income reflects the bank's ability to to do this.
{% NII = \sum_{i=1}^n a_i y_i - \sum_{j=1}^m l_j e_j %}
- {% a_i %} - dollar amount of asset i
- {% y_i %} - yield of asset i
- {% l_j %} - dollar amount of liability j
- {% e_j %} - interest expense of liability j
Note, the dollar value of assets of a bank will be higher than the liabilities (or else the bank would be bankrupt). This means that the bank can still have a positive NII even when the expense rate and the asset yeild are the same.