Bank Investing: A Practitioner’s Field Guide

Bank investing is a fascinating realm where tradition meets innovation. At its core, banks act as intermediaries, converting dormant deposits into productive loans that fuel economic growth. Imagine the seventeenth-century goldsmiths who first realized that the gold held under lock and key could be lent out to generate interest, birthing the fractional reserve banking system. This simple yet revolutionary idea underpins modern banking.

Community banks epitomize this localized expertise, holding over $13 trillion in deposits across the United States. Their intimate knowledge of local economies allows them to allocate capital efficiently, a feature that large national banks or fintech challengers often cannot replicate. Yet, the rise of fintech companies is reshaping the landscape. Giants like Amazon could, hypothetically, amass a customer base rivaling the fourth largest bank in the country within just five years, a feat that took traditional banks over a century.

However, the banking model remains a double-edged sword. While the charter confers benefits like deposit-taking and regulatory protections, it also imposes a regulatory burden that can be onerous, especially for smaller institutions. This dynamic explains why de novo bank applications remain below pre-financial crisis levels despite regulatory efforts to encourage new formations.

As we journey deeper, we will explore how to analyze bank financial statements, a vital skill in deciphering the true health and prospects of these institutions. Let us move forward to uncover the unique financial anatomy of banks.