Question

ABC Bank has the balance sheet below. Assume the required reserve ratio is 10%; the excess reserve ratio is 0; and the checkable deposit ratio is also 0. Also assume ABC Bank manages its assets and liabilities to earn the highest possible profit. List 3 different areas ABC Bank will manage to maximize profits and describe how ABC Bank will manage that particular area to maximize profits.

ABC Bank
Assets		Liabilities and Bank Capital
Reserves	$10 million	Checkable Deposits	$100 million
Rate Sensitive Assets	$100 million	Rate Sensitive Liabilities	$50 million
Long-Term Loans	$50 million
Long-Term Securities	$40 million	Bank Capital	$50 million

Answer 1

Following are the three areas which bank shall manage to maximise profit:-

1.Process Costs:

The opportunity to improve process cost,often is underappriciated in banks because its involve taking a more manufacturing view of business process.The goal is to improve the bank's efficeincy ratio by reducing the unit cost of each activity or transaction such as cost of opening an account,creating of loan document package,or handling a specific type of transaction.

Process Improvement in this area involves continual performance monitoring and often comes about as a result of analyzing,mapping,benchmarking and ultimately rethinking of back office processes.

Thus by reducing Process cost ABC Bank can maximize its profit.

2.Staff Productivity:

In addition to reducing process cost,automation tools can help improve staff productivity,enabling banks to handle more transactions and greater volumes of activity with the same number of personnel,thereby reducing staff cost.But productivity improvement is not dependent on technology alone.Some of the most significant opportunities involve using established performance management techniques, such as clearly defined expectations and scorecards,improved motivation and rewards systems,and better training and supervision.

3.Vendor Relationships:

Improved vendor management does not mean that pressuring vendors to lower their prices.Rather,it is a focused effort designed to derive the greatest possible value from a vendor relationship.Other basic cost cutting techniques include consolidating vendors and benchmarking costs against comparable services in the market.