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How do banks make money these days? In theory a bank is supposed to make money by the difference they charge in loan interest and the interest they pay to custo
by exabrial 4y ago
How do banks make money these days? In theory a bank is supposed to make money by the difference they charge in loan interest and the interest they pay to customers, minus their overhead.
It just seems like if they’re charging 8%-12% on a 3-4 year auto loan, they’d be Paying more than .5% to customers.
What am I not understanding?
- notahacker 4y agoLoans have defaults, and retail banks have significant running costs
- LatteLazy 4y agoIt's the same model BUT they don't get anywhere near enough money from deposits to cover loans. So they bundle them up turn it into a "bond" and sell it to various clients (pension funds, high net worth individuals, hedge funds etc). That's why they're not willing to pay more than 0.5% to depositors: You can do one deal to fund 100mil in lending with a hedge fund for 3%, or you can offer 3% to depositors, then spend another 3% employing staff and opening branches for those accounts, and when there is a downturn they all withdraw their cash and your bank fails. That, and for (say) auto loans, you need to withhold a chunk of money to cover defaults.