does a fixed and variable cost perspective in Banking make sense, i.e., what would be the variable that a bank considers for their “variable” costs (e.g., number of customers, $ deposited)? Or would a direct vs indirect cost perspective make more sense, e.g., costs directly related to a specific service/product?
If a banking expert could shed some light on this, I would really appreciate it:-)
It would highly depend on the nature of banking operations: retail banking, investment banking, corporate banking and so on. While, what you state might be true for digital operations, for an investment bank, the primary costs are going to be staff costs and going by the classic definition of variable costs as that which can be eliminated in the short term, I would classify staff costs as such.
I just looked up annual report for JP Morgan chase 2021: (all numbers approximated) Compensation expense: $38B Non-compensation expenses: -- Occupancy : $4.5 B -- Technology, communications and expenses: $9.9B -- Professional and outside services: $9.8B -- Marketing : $3.0B -- Other: $5.4B Total expenses (non interest): $71B Clearly, compensation is the single biggest cost item (53%). It is a variable cost