You Don't Have to Pick a Winner in Banks. Here's Why.
On the whole, banks can be some of the toughest stocks to analyze. There are a couple of key reasons for that. One key reason is that many of their assets -- being largely financial in nature -- can evaporate in a heartbeat as conditions change. For instance, if enough people are unable to pay their debts to a bank, that bank may be forced to increase the amount it writes off as uncollectable. That can force assets to disappear, seemingly by the stroke of a pen.
Another key reason is that money in the bank -- customer deposits -- is actually a financial liability from the bank's perspective. As Silicon Valley Bank found out earlier this year when the fastest bank run in history forced it into receivership, when customers demand their money back en masse, it can cause catastrophic troubles.
Still, despite those difficulties, successful banks can be profitable investments for their shareholders. After all, their business is literally making money by lending out their deposits at a higher interest rate than they pay those depositors.
Source Fool.com
