Banking and the Opaque Cost of Goods Sold

Banking is probably the only industry in the world where you can hide your cost of goods sold until there's some sort of downturn.

Bill Demchak, Chairman and CEO of PNC Financial

Good morning friend,

Today we’re talking about one of the most unusual characteristics of banking. It’s what I call the opaque cost of goods sold.

This is a critical concept to appreciate how banking is unique from other industries, as we’ll see in today’s video with a short case study.

It’s easiest to understand the concept of an opaque cost of goods sold if we compare banking to a typical business model — say, a bookstore.

When a bookstore sells a book, it knows immediately estimate its gross margin. It’s simply what it sold the book for less what it paid for the book.

The same is not true in banking.