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Finance Dictionary and Glossary of Investment Terms
efficiency ratio
Definition 1.
Operating expenses divided by fee income plus tax equivalent net interest income.
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Definition 2.
A ratio used to calculate a bank's efficiency. Not all banks calculate the efficiency ratio the same way. We've seen the ratio calculated as all of the following:1. non-interest expense divided by total revenue less interest expense2. non-interest expense divided by net interest income before provision for loan losses 3. non-interest expense divided into revenue4. operating expenses divided by fee income plus tax equivalent net interest income For all versions of the ratio, an increase means the company is losing a larger percentage of its income to expenses. If it is getting lower, it is good for the bank and its shareholders.
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