Knowledge Base: Bank Modeling Tutorials

Commercial banks operate in a fundamentally different way from “normal” companies that sell products or services to customers.

For commercial banks, the key top-line driver is loan growth; once they have issued loans to borrowers, they find deposits and other liabilities, such as debt, to “back up” these loans on the Liabilities & Equity side.

The bank then earns money based on the spread between the interest it earns on its loans and the interest it pays on its deposits, debt, and other interest-bearing liabilities.

Banks must also maintain a certain amount of regulatory capital at all times, roughly in proportion to their “risk-weighted assets” (RWAs), which consist primarily of their loans. This regulatory capital consists mostly of Common Shareholders’ Equity, with a few adjustments.

This regulatory capital requirement constrains banks’ growth rates and means that they must decide whether to issue dividends to shareholders or retain equity to support their future growth.

On this page are several tutorials and samples from our full Bank Modeling course: