When Things Go South at Capital One Financial, They Go South Fast
Capital One Financial (NYSE: COF) is an interesting bank. Unlike most banks, it hasn't focused on building out a branch network. It has instead built out a credit card business.
This is a very different model from the banking industry giants, and investors need to fully appreciate the risks involved. Here's what you need to know, and why investors might want to tread with caution today.
The basic bank model is pretty simple: It takes in cash from customers in the form of deposits (think savings and checking accounts). It then uses that cash to lend to other customers (think mortgages). The bank will usually pay less interest to bank account holders than it charges for the mortgages it issues, with the difference representing its profit. Banking today is a lot more complex than that, but traditional banking is still a core part of most large banks.
Source Fool.com