Which of the following best describes 'interest margin'?

Interest margin is best described as the difference between the interest income generated from loans and the interest expense associated with deposits. This concept is fundamental in banking as it reflects how efficiently a bank can manage its assets and liabilities. The interest margin indicates the profitability of a bank's core lending operations, whereby a bank earns more from the interest charged on loans than it pays out to depositors. This spread is crucial for assessing the financial health and competitive position of a bank, as it has a direct impact on the institution's net income.

Income from customer service fees, for instance, is an additional revenue stream for banks but does not directly relate to the core interest operations that make up the interest margin. Similarly, while investment income can contribute to a bank's overall profitability, it does not encompass the banking operations involving deposits and loans, which are fundamental to calculating interest margin. The cost of obtaining capital is relevant to a bank's overall cost structure, but it pertains to broader financial management rather than the specific calculation of interest margin. Thus, focusing on the relationship between loan interest and deposit interest accurately captures the essence of what interest margin means in the context of banking operations.