what is a noninterest expense 
a noninterest expense is an operating expense of a bank or financial institution that is classified separately from interest expense and provision for credit losses examples of noninterest expenses include understanding noninterest expensesa bank has two main buckets of expenses interest and noninterest interest expenses are incurred from deposits short term and long term loans and trading account liabilities a noninterest expense is an expense other than interest payments on deposits and bonds these expenses are often operational expenses incurred in the daily running of the bank a noninterest expense in the case of a bank for a financial institution represents an expense that is not directly associated with attracting and keeping a depositor s funds noninterest expenses are sizeable and a bank must manage them carefully to maximize profits otherwise excessive noninterest expenses will directly impact the bottom line noninterest expenses represent the operating expenses of the bank the majority of which are personnel costs occupancy and it costs are also material cost components as are professional fees particularly for legal services to negotiate settlements for past ongoing and future fraudulent activities affecting the bank in aggregate the noninterest expense is considered a bank overhead and is used to calculate the overhead ratio of the bank for trend analysis and cross comparisons with peers noninterest expense divided by average assets is the overhead ratio when an overhead ratio becomes unacceptably high for a prolonged period a bank will typically address personnel costs first because human capital costs account for most of the noninterest expense shareholders in recent years have paid more attention to executive compensation to ensure that managers are not receiving unwarranted pay shareholders generally favor competitive compensation but want to see that overall personnel costs are within a reasonable range noninterest expenses by bank typenoninterest expenses are typically higher for investment banks than commercial banks but this can be hidden behind the numbers it depends on the number of employees and their compensation for example investment banks rely more on trading asset management and capital markets advisory services which all require higher employee compensation levels and fewer employees on the other hand lending activities by a commercial bank do not call for wall street compensation levels and the market the bank serves calls for more employees wells fargo has about 247 000 employees while morgan stanley has about 60 000 12 in 2021 morgan stanley s noninterest expenses composed 66 of revenues compensation alone made up approximately 38 of revenues 3for wells fargo total noninterest expenses and employee costs accounted for 69 and 45 of revenues respectively 4 personnel costs as part of revenues are within a few percent of each other but this is likely due to the difference in employee counts and compensation levels 