Cost Structure of Banks?

Banks case structure costs Structure
New answer on Mar 11, 2020
6 Answers
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Anonymous A asked on Mar 10, 2020

Does it make sense to split a Bank's costs into variable vs fixed? Or is there a better segmentation?

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Francesco
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replied on Mar 11, 2020
#1 Expert for Coaching Sessions (3.700+) | 1.300+ Reviews with 100% Recommendation Rate | Ex BCG | 8+ Years of Coaching

Hi Anonymous,

fix and variable is a feasible way to divide costs for a bank. You may also use other ways (eg value chain or operational functions), the important thing is that:

  • Your division is MECE
  • Your division helps to brainstorm easily the main types of costs

Best,
Francesco

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Sidi
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replied on Mar 11, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi! There are many many ways how you can structure costs. You can do it according to business lines (for example interest vs non interest), business processes, functional groups, logical categories (e.g., fixed and variable), or many other. There is no "best" option! You have to just be aware of the fact that there are many possibilities, and that it is your task to find out, which kind of categorization makes most sense given the context and data available. This is done by means of clear communication with the interviewer.

Cheers, Sidi

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Anonymous B replied on Mar 10, 2020

I would split it into interest and non-interest expense. Makes much more sense... You can also have a look at a 10-k of a bank ;)

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Clara
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replied on Mar 11, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Yes, makes sense, but I would advise you to look at each cases prompt to see what approach makes most sense.

Hope it helps!

Cheers,

Clara

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Vlad
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replied on Mar 10, 2020
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Don't forget to add Cost of Capital, Provisions (cost of risk) and of course the classic FC, VC

Best

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Udayan
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replied on Mar 10, 2020
Top rated MBB coach with many offers /Ex McKinsey EM in New York /6 years McKinsey recruiting experience/Real cases

You can do so - banks also have variable and fixed costs. What goes into those buckets e.g, fixed = CCAR/Regulatory, Real Estate or Administrative costs is what differentiates it from other industries

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Francesco gave the best answer

Francesco

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