Not so long ago, the efficiency ratio was regarded as an obscure measure of bank performance. But with the industry's sights set on cutting costs, and the ever-present need to satisfy Wall Street, more and more banking companies are including the ratio of noninterest expense per dollar of revenue in annual and quarterly reports.
But some analysts are saying a rise in the efficiency ratio is not necessarily a bad thing - if it reflects prudent investments that will generate strong revenue growth. That in turn, of course, will eventually drive the ratio down again.
Nancy Bush, a Brown Brothers Harriman analyst, noted that Bank of Boston Corp. has been investing to build its business in Latin America They have extraordinary expense requirements in those subsidiaries because of the growth they are experiencing there, she said.
Michael K. Diana, a Bear, Stearns & Co. analyst, said, If banks think they need to hire more loan officers, or they think they need to spend more money on systems, or they think they need more advertising, that's how it goes up.