A bank that holds a greater percentage of traditional demand deposits and loans will likely incur ____ non-interest expenses and have a ____ net interest margin than other banks of the same size (assuming that its loan losses are no higher than those at other banks).

Question

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A bank that holds a greater percentage of traditional demand deposits and loans will likely incur greater non-interest expenses because demand deposits require more frequent servicing than other types of deposits, and loans require more underwriting and monitoring than other types of investments. A bank with a greater percentage of traditional demand deposits and loans will also likely have a lower net interest margin because demand deposits typically have lower interest rates than other types of deposits, and loans typically have higher interest rates than other types of investments.

A Bank That Holds a Greater Percentage of Traditional Demand