Factors That Influence Bank Earnings

Several factors, both external and internal to the bank, affect the quantity and quality of bank earnings. External factors relate primarily to the environment in which the bank operates and pertain to conditions that are largely beyond its control. While external factors are significant to a bank’s performance, experience has shown us that the internal factors, i.e., those that you and bank management can control, are much more important and influential on a bank’s success or failure.

Factors That Influence Bank Earnings
External
  • Economic conditions
  • Competition
  • Laws and regulations
  • Technological change
Internal
  • Excessive or inadequately managed credit risk that may result in loan losses and require additions to the allowance for loan and lease losses
  • High levels of market risk that may unduly expose an institution's earnings to volatility in interest rates
  • Undue reliance on extraordinary gains, nonrecurring events or favorable tax effects
  • An inability to forecast or control funding and operating expenses
  • Improperly executed or ill-advised business strategies
  • Poorly managed or uncontrolled exposure to other risks


While external factors are significant to a bank’s performance, experience has shown us that the internal factors are much more important and influential on a bank’s success or failure.