How do Banks Make THEIR Money?

Banks generate revenue through a variety of sources, but the majority of their income typically comes from interest on loans and fees charged for services. Here is a breakdown of how banks make the majority of their income:

• Interest on loans: This is the largest source of income for banks, accounting for around 60-70% of their revenue. Banks make money by lending out money to customers at a higher interest rate than they pay out on deposits. For example, a bank may offer a mortgage loan at 4% interest, but pay only 2% interest on savings accounts. The difference in interest rates is the bank’s profit.
• Fees: Banks also generate significant revenue from fees charged for services such as account maintenance, ATM transactions, and wire transfers. This can account for around 20-30% of a bank’s revenue.
• Investment banking: Some banks generate revenue through investment banking activities, such as underwriting securities or trading in the financial markets. However, this is typically a smaller portion of overall revenue, accounting for around 5-10%.

It is important to note that banks are heavily regulated by government agencies such as the Federal Reserve, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau. These agencies are responsible for ensuring that banks are operating within the law and protecting consumers from predatory practices.

Sources:

1. “How Do Banks Make Money?” by Corporate Finance Institute (https://www.moneycrashers.com/how-banks-make-money/)

For further reading on the banking business, you may be interested in the following resources:

• Federal Reserve: https://www.federalreserve.gov/
• Office of the Comptroller of the Currency: https://www.occ.gov/
• Consumer Financial Protection Bureau: https://www.consumerfinance.gov/

and for legal aspects

• The Federal Reserve Act and the Banking Act of 1935
• The Glass-Steagall Act of 1933 and the Gramm-Leach-Bliley Act of 1999