Quote from: Mauser on Today at 06:04:41 AM

Quote from: Godlovesyou on May 15, 2023, 09:48:37 AM

This is what makes financial institutions very wealthy.

Running a bank has been a lucrative business in the past for its owners, but this doesn’t mean that all banks are a money printing business. Over the years there has been quite a lot of banks that went bankrupt. Even this year we saw big American banks struggle with the continues interest rate rises by the FED. The main business of the bank is to match customers demand and supply for money. Usually, you have one side depositors who leave their money long term with the bank and are looking for some interest on their savings account. Against that you have the borrowers, that require money short term for consumption, investments or mortgages. The bank charges higher interest on their loans than what they are paying on the savings to make a profit. But there is a maturity mismatch between deposits and loans which creates risks for the banks. Especially when there is a huge deposit outflow the bank will struggle to meet the capital requirements. Now with the new high interest rate environment it becomes very expensive if the bank needs to raise money itself to meet the outflows. I think that the banking business model only really works for the largest banks that have millions of customers, because the government would always step in to protect the customers and can’t let it go bankrupt, for smaller banks it’s much riskier to operate in high interest periods.

They bank will generate income are The main business of the bank is to match customers demand and supply for money and The bank charges higher interest on their loans than what they are paying on the savings to make a profit and Now with the new high interest rate environment it becomes very expensive if the bank needs to raise money itself to meet the outflows and The difference is the bank's profit, known as the interest spread or margin.