net interest margin

Definition

The difference between interest income banks earn on loans and interest they pay on deposits, expressed as a percentage. The fundamental measure of whether a bank's basic business model actually works.

Example Usage

The bank's net interest margin compressed to 2.5% as deposit rates rose faster than they could increase lending rates, squeezing profitability.

Origin

Banking industry metric developed to measure core lending profitability.

Fun Fact

Net interest margin explains why banks hate low interest rate environments—when rates approach zero, there's barely any spread to capture.

Source: Bank financial analysis

Related Terms

Beginner

Compound Interest

Interest earning interest on itself, which Einstein allegedly called the eighth wonder of the world, though he probably never had a credit card balance. It's magical when it works for you and absolutely devastating when it works against you.

💰 Finance / Accounting

Intermediate

underwriting

The mystical process where financial institutions assess risk and decide whether to give you money, usually involving algorithms, credit scores, and prayers to the profit gods. Investment banks use it to evaluate securities before offering them to investors, while insurance companies use it to determine if you're worth the gamble. It's essentially professional betting on whether you'll pay your bills or file a claim.

💰 Finance / Accounting

Advanced

special purpose vehicle

A separate legal entity created for a specific financial purpose, often to isolate risk or achieve off-balance-sheet treatment. It's a corporate subsidiary with one job, usually something the parent company wants plausible deniability about.

💰 Finance / Accounting

Intermediate

crossfoot

To verify that the sum of row totals equals the sum of column totals in a spreadsheet, because trusting your formulas is for amateurs. It's the accounting equivalent of checking your math twice before raising your hand.

💰 Finance / Accounting

Intermediate

treasury stock

Shares that a company has issued and later repurchased, sitting in corporate limbo—not quite cancelled but no longer outstanding. The equity equivalent of taking back your gift because the recipient didn't appreciate it enough.

💰 Finance / Accounting

Beginner

reserve for bad debts

An estimate of accounts receivable that will never be collected, subtracted from assets to present a more realistic balance sheet. It's acknowledging that some customers are deadbeats before they officially become deadbeats.

💰 Finance / Accounting

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