Case Study: Financial Institution Asset / Net Income Relationship

How well does asset size predict net income for financial institutions? Will growing assets lead to greater income?

At Charles Schwab, there was a fairly stable relationship from 1995 to 2000. A shift occurred starting in 2001, however.

Wells Fargo also has an erratic relationship, with 1999 and 2001 being significantly different from other years.

Bank of America shows a similar pattern to Wells Fargo, although performance in 2000 was worse.

Overall, there does seem to be a relationship between assets and net income, even across companies and industry segments. However, this relationship is not as strong as seen in other industries, and there is significant variance in some years. Not surprisingly, it is likely that other factors also affect income, and should be included in the model.