Banking Models 1
Short Paper: Banking Models
Matthew King
Southern New Hampshire University
Banking Models 2
Banking Models
As a finance manager, I will need to select a banking model in order to choose a bank that
my company with use. The two options on the table are a Holding Balance banking model and a
Service Fee banking model. Before I can make a decision, lets take a look in more detail to see
what each model entails in order to be a good, informed decision.
The holding balance banking model will be looked at first. This is a more traditional
model that involves the customer holding a minimum compensating balance in their account(s).
This way the bank retains that capital to do other things with such as issue more loans, extend
credit, or carry other routine banking operations (Baxter, 264). For example, lets say that the
customer takes out a $10,000 business loan. The terms of the loan indicate that a 5%
compensating balance must be maintained. This means that the customer must leave $500 in the
