When Matt wrote his post the other day about starting a bank it got me thinking about the effect of what he is saying relative to profitability when we introduce a policy to be safe and carry capital reserves of 2 – 3 times more than todays banks. Assumptions: – demand deposits = demand loans – GIC (CD) = Mortgages – incremental investment in higher returning mortgages is funded from cash Relevance to Bankwatch: A $4 increase in gross profit results in a 15% higher Return on Equity when a lower capital ratio of 10% is accepted.  Note the stock … Continue reading Mullenweg’s Safe Bank Could not just Survive but it could Prosper