They must also by computers and other equipment to automate their operations to keep costs down. The banking industry is very labor intensive. In recent years, banks have moved to reduce personnel through layoffs and natural attrition while automating back-end processing of financial transactions. This is one reason many banks prefer customers to use ATM machines and internet banking as opposed to visting an in-branch teller. The cost is enormously high.
Interest rates are the single most important aspect of bank profitability.
Most bank profits are derived from net interest income . This is interest income received on loans minus interest expense for borrowed fuunds. Interest rates determine the amount of money a bank can earn. Another measure is a banks' net interest margin which is a bank's net interest income divided by its average earning assets. This is a common measure of a bank's ability to squeeze profits from its loans.