The parent post contains a scenario where a bank has 1 T out in loans. If they make 50b (5%) in profit, they can withstand 4% of those loans going default. If p

The parent post contains a scenario where a bank has 1 T out in loans. If they make 50b (5%) in profit, they can withstand 4% of those loans going default. If profit goes up, and they can have more go default, and, get this, they charge more interest on loans more likely to go into default to cover this. They may even look at historical rates of insolvency and make sure they charge interest so that they make enough profit to cover any losses. Certainly this can go sideways when they don't understand the risk in one type of loan, like 2007-2008, but most of the time, they can figure this out.