THE SHORT CUT LIVING on a tropical island has the potential to make one a little bit inward looking.
Availability bias will dictate that island inhabitants favour domestic investment opportunities over global ones. And we need not look any further than Australia's listed banks to see this idea in action. But first, how do banks generate economic profits for shareholders?
There are four key drivers: NET interest margin, or NIM - that is, the difference between the interest rate on a loan received by the bank versus the interest rate paid by the bank on its funding of the loan; LOAN growth, which simply reflects how many loans the bank is making; OVERHEAD growth, which reflects the cost base of the bank including employees and branch expenses; and CAPITAL requirements, which reflects how much shareholders' equity is required by regulators to be held by the bank. 
In essence, shareholders want the first two drivers to be as high as possible and the second two drivers as low as possible.
In Australia, the economy is weakening. The best days of the mining boom are behind us, the Budget is consolidating and there is increasing noise of oversupply in segments of the housing market.
It is for precisely this reason, along with a stubbornly strong currency, that the Reserve Bank of Australia has cut its cash rate target again this year.
These two factors create downward pressure for Australian banks' NIM and loan growth.
Now, with respect to overheads, Australian banks are remarkably efficient already. On the one hand this is positive; on the other hand, it potentially limits the extent to which future reductions can be made in light of weaker top-line growth.
When it comes to capital requirements in Australia, they are only going up. Regulators globally are becoming stricter on banks to help ensure the protection of taxpayer money in the event we go into another global financial crisis.
Compare the Australian situation to that in the US.
Interest rates have been about as low as they can go and, as of last   December, have started to increase.
To the extent interest rates continue to rise, bank NIMs will also expand. Instead of a weakening economy, the US economy is recovering, albeit slowly. Wages are growing, unemployment is low, new home sales are at their highest since the crisis and annual auto sales are not far off their all-time highs. This bodes well for credit growth.
On the overheads side of the equation, US banks are nowhere near as efficient as Australian banks, in general.
Again, while this sounds like a bad thing, it actually suggests there is a big opportunity for focused management teams to rationalise their operations.
Finally, on capital requirements, these too have been going up. Yet, for many US banks, the bulk of the heavy lifting has been completed. The long run prospects for US banks are not bad at all.
Now the astute reader will be thinking: yes, US banks are better positioned, but what about their price?
If quality is already priced in, then they are not necessarily a better investment.
But surprisingly, many US banks are actually cheaper than Australian banks. Consider JPMorgan Chase, Citigroup and Wells Fargo: the average price-to-book ratio is 1.06 times. The average price-to-book ratio of the four major Australian banks? 1.68 times. How many American investors do you think are piling into Australian banks right now?
ANDREW MACKEN IS A PORTFOLIO MANAGER AT MONTGOMERY GLOBAL INVESTMENT MANAGEMENT@amacken