Diversified banks make money in a variety of different ways; however, at the core, banks are considered lenders. Banks generally make money by borrowing money from depositors and compensating them with a certain interest rate. The banks will lend the money out to borrowers, charging the borrowers a higher interest rate and profiting off the interest rate spread.
Additionally, banks usually diversify their business mixes and generate money through alternative financial services, including investment banking and wealth management. However, broadly speaking, the money-generating business of banks can be broken down into the following:
- Interest income
- Capital markets income
- Fee-based income