Efficiency ratio

The efficiency ratio is like counting how many toys you can clean up in one minute. In grown-up terms, it's a measure that bankers use to find out how well they're managing their money.

When your piggy bank has too much money in it, you might need to go to the bank to put some in a savings account. The bank will use your money to lend to people who need it, and they'll charge interest – kind of like when you loan your favorite toy to a friend and they have to give you a cookie in return.

Now, the bank wants to make sure it's using your money wisely, so they measure their efficiency ratio. They count how much money they're spending on running the bank, like paying employees and heating the building, and they compare that to how much money they're making from loans and investments.

If the bank is spending a lot of money but not making much in return, that means they're not doing a good job of managing your money. That's like if it takes you a long time to clean up your toys, but you're not putting many away each time.

On the other hand, if the bank is making a lot of money compared to what they're spending, that means they're doing their job well. That's like if you're able to clean up lots of toys in just one minute.

So, the efficiency ratio helps the bank and grown-ups in general see if they're doing a good job with their money or if they need to make some changes to do better.