wunder beta📘 How do banks make money?
Stand before a steel vault door and banking can look like a storage business: money goes in, waits, and comes back out. A commercial bank’s accounts tell a different story. On one side of its balance sheet are assets that can produce income
What you’ll learn
- Turn a balance sheet into an earning engineExplain how deposits, loans and securities occupy a bank balance sheet, how lending creates deposits, and how the interest spread becomes net interest income.Deposits fund and obligate a bank, loans and securities earn interest, and the resulting spread must still cover risk and operating costs.
- Earn beyond the interest spreadIdentify major forms of noninterest income and distinguish bank revenue from profit after the costs of delivering accounts, payments and financial services.Fees, payments, advice and market services can diversify revenue, but every service carries operating, technology, compliance and risk costs.
- Protect the profit from riskDistinguish credit, interest-rate and liquidity risk, then explain how capital, insurance and supervision help protect depositors and bank continuity.Defaults, repricing mismatches and withdrawals can consume earnings; liquidity meets payments while capital absorbs losses and limits leverage.
Questions this course answers
What is a customer deposit on a commercial bank’s balance sheet?
The balance is the customer’s asset and the bank’s obligation, so the bank records it as a liability.
What happens on the bank’s balance sheet when it first grants a new loan?
The loan is the bank’s new asset and the credited spendable deposit is its matching new liability.
Which calculation best describes net interest income?
Net interest income is the interest revenue from earning assets less the interest expense on funding.
Why can rising market interest rates reduce a bank’s margin?
Assets and funding reprice on different schedules, so fast-rising funding costs can squeeze the spread.
How does bank capital differ from liquidity?
Capital is the loss-absorbing cushion, while liquidity consists of resources available to meet obligations on time.
Grounded in trusted sources
- Money creation in the modern economy — Bank of England — https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
- Banking Analytics: Lower Asset Yields Squeeze Bank Interest Margins in Q1 — Federal Reserve Bank of St. Louis — https://www.stlouisfed.org/on-the-economy/2026/jun/banking-analytics-lower-asset-yields-squeeze-bank-interest-margins
- Quarterly Banking Profile — Federal Deposit Insurance Corporation — https://www.fdic.gov/analysis/quarterly-banking-profile/index.html
- Banking System Conditions — Board of Governors of the Federal Reserve System — https://www.federalreserve.gov/publications/2026-june-supervision-and-regulation-report-report-banking-system-conditions.htm
- What is the difference between a bank’s liquidity and its capital? — Board of Governors of the Federal Reserve System — https://www.federalreserve.gov/faqs/cat_21427.htm
- Loans — Federal Deposit Insurance Corporation — https://www.fdic.gov/consumer-resource-center/loans
- Deposit Insurance FAQs — Federal Deposit Insurance Corporation — https://www.fdic.gov/resources/deposit-insurance/faq/
- Why am I being charged a monthly maintenance fee for my bank or credit union account? — Consumer Financial Protection Bureau — https://www.consumerfinance.gov/ask-cfpb/why-am-i-being-charged-a-monthly-maintenance-fee-for-my-bank-or-credit-union-account-en-2151/
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