Declining NIMs: The Cold, Hard Numbers of the Innovation Imperative

  • JJ Hornblass
  • March 8, 2013
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As we head in the final stages of preparation for Bank Innovation 2013, I cannot help but notice just how far the banking industry has come over the last two years.

This is not the same-old-same-old banking industry. I just don’t think it is possible to say that banking is “slow to innovation” or is “behind the curve.” It is just not anymore, as I have no doubt will be evidenced at Bank Innovation 2013.

The question is why? What has changed?

phpjQz9qVAMThere are a thousand answers to these questions, but I will offer one: net interest margins. Banks are dropping NIMs like a kindergartner with soapy hands. In aggregate, banks dropped nearly 40 basis points of NIM to 3.45%, according to And what is driving this drop in margins? Lower yielding assets. The industrywide yield on earning assets in 2012 hit a 10-year low of 3.99%. Just to put that in perspective the YEA in the second quarter of 2007 was 6.82%.

Now, cost of funds is also at a 10-year low (0.54% — thank you, Mr. Bernanke), but the fact that banks can maintain even the margins they did in 2012 is noteworthy. However, we all know that cost of funds cannot go much lower — if even at all — and that means NIM compression will come out of banks’ bottom lines.

And that means banks have no choice but to innovate, to find new revenue opportunities and cost savings. It’s in the numbers, folks.

Join us at Bank Innovation 2013 next week to learn more about financial innovation.

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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at or 212-564-8972.

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