4. How Do Banks Make Money?

Capital Markets-Related Income

Banks often provide capital markets services for corporations and investors. The capital markets are essentially a marketplace that matches businesses that need capital to fund growth or projects with investors with the capital and require a return on their capital.

Banks facilitate capital markets activities with several services, such as:

  • Sales and trading services
  • Underwriting services
  • M&A advisory

Banks will help execute trades with their own in-house brokerage services. Furthermore, banks will employ dedicated investment banking teams across sectors to assist with debt and equity underwriting. It is essentially assisting with raising debt and equity for corporations or other entities. The investment banking teams will also assist with mergers & acquisitions (M&A) between companies. The services are provided in exchange for fees from clients.

Capital markets related income is a very volatile source of income for banks. They are purely dependent on the capital markets activity in any given time period, which may fluctuate significantly. Activity will generally slow down in periods of economic recession and pick up in periods of economic expansion.

Leave a Reply

Your email address will not be published. Required fields are marked *