Research Progress Report 158 December, 1964
Functional Cost Analysis for Non-departmentalized Indiana Commercial Banks, 1963
Robert Wendell Martin and James C. Snyder, Agricultural Economics
The small midwestern commercial bank has traditionally been an organization highly conscious of the demands of skilled management. This skill is manifest as officers and directors strive to advise others on financial matters, to provide the best possible service to the community with reasonably competitive rates on savings deposits, service charges and loan rates, and to adequately reward stockholders. The proposition that management skill is a dynamic resource behind the banking enterprise is confirmed by the widespread concern over the problem of management succession.
To carry out the responsibility of managing the affairs of the small bank, management needs more than an intuitive insight into the local financial needs, the costs of servicing these needs, and the means of deriving an adequate profit from servicing these needs. The tendency for small bank management is to offer services "competitively" below cost, and to offer some "competitive" rate of interest to attract deposits, with no regard as to costs incurred in performing various functions.
Management needs specific, well-defined information on which to base decisions concerning operations of each func-
tion or service. Furthermore, the board of directors of a small bank must be made aware of the kinds of information which lead to sound decision-making and, in turn, insure continuity of management and establish sound business policies which best serve the needs of the community, customers, and stockholders.
The need for cost and income data by functions, or services, of Indiana commercial banks has been highlighted by the hesitant and slow adoption of changes in the interest rate paid on time deposits, the singularly low loan-deposit ratio maintained by law, and the changing nature of competition for savings dollars with other lending institutions.
Other needs for functional data arise from the changing requirements of farm credit due to technological change and improved management, such as popularity of installment and "check" or "charge" credit, the changing characteristics of commercial borrowing and investing, and the shifting opportunities in municipal and United States securities.
The need for study of information systems is intensified by the rapid growth
PURDUE UNIVERSITY • Agricultural Experiment Station • Lafayette, Indiana