1. Bank creates money by Fractional Reserve Banking:

By lending out more money than they have on deposit, banks generate new funds. Fractional reserve banking is the practise of banks holding just a portion of the deposits made by their clients as liquid reserves while lending the remainder.

2. Bank creates money by Creating Credit:

Credit is a form of money creation for banks. They provide credit, which is a sort of money, as a form of lending to people and businesses. Moreover, banks use a method known as fractional reserve banking to create credit in order to produce money. Only a portion of deposited cash may be held by banks as reserves; the remainder must be lent out as credit or loans, creating an asset for the borrower and a liability for the bank. The asset/liability transaction increases the amount of money in the economy by producing new money.

Also, the bank first sets away a part of each deposit that a consumer makes into their account. The borrower subsequently makes purchases or investments using the loan funds, and the bank registers these as an asset on its balance sheet. The process starts over when the freshly created credit is placed into another account. This allows for the creation of fresh credit, which can then spread throughout the economy. One of the main ways banks generate money in our economy is in this way.

3. Investment Banking:

Investment banking services help banks make money. For firms to grow or acquire other businesses, they offer funding and expertise.

Also, banks generate revenue through investment banking by using the funds in their deposit and loan accounts to fund different ventures and initiatives. Investment banking is a branch of banking that handles substantial financial transactions and investments for organisations such as governments and enterprises.

Also, when organisations or governments need money for a project, they will go to an investment bank to raise money. The investment bank then evaluates the project’s risk and establishes the loan’s terms.

Ultimately, the borrower receives the sales revenues in exchange for making interest payments. The investment bank effectively generated money out of thin air by issuing these securities. Banking with a fractional reserve is what this is. The investment bank then uses the money it has generated as a result of this procedure to fund the borrower’s project or investment. The interest, charges, and commissions related to the deal also bring in money for the investment bank. This kind of banking has evolved into a crucial component of how banks generate funds throughout time.

4.  Securitization:

Securitizing assets like mortgages, auto loans, and student loans allows banks to generate revenue. The bank then makes more money when these assets are sold to investors.

Also, by packaging and selling off their loans to investors in the form of securities, banks make money through securitization. A portfolio is made up of loans that the bank has originated, such as mortgages and auto loans. Banks can make more money through the securitization process than they could by keeping the loans on their balance sheet alone. Additionally, it enables them to broaden their lending profile and draw in more investors

5. Bank creates money by Overdraft Fees:


When you don’t have enough funds in your account to pay your transactions, overdraft fees will apply. Depending on the bank, overdraft fees might cost as much as $35 per transaction. These charges can easily mount up and have pricey knock-on effects. When consumers remove more money from their accounts than they have available, banks charge overdraft fees in order to cover their costs.

6.  Credit Card Services:

The primary way that banks make money is interest from credit card accounts.  They also charge fees for late-payments and annual membership fees.

7. Bank creates money by Market Accounts:

Money market accounts, which are short-term investments that pay greater interest rates than other types of savings, are a way for banks to make money. A money market account normally receives a monthly credit from the bank along with daily interest calculations. Money market accounts typically offer marginally better interest rates than traditional savings accounts.

8. Foreign Exchange (Forex):

Banks help customers with their foreign exchange transactions and carry out speculative trades from their trading desks. The bid-ask spread is a representation of the bank’s profits when it acts as a dealer for customers. To profit from currency swings, traders conduct speculative currency trading. Hence, banks help to produce money by facilitating global trade and foreign exchange speculating.

9. Merchant Services:

Merchant account providers make money based on their bank association fees and setup fees. When a company, such as a retailer, registers with a merchant account company, which may be a bank or an Independent Sales Organization (ISO), there is an application fee and yearly bank fees. So Banks create money through merchant services, by charging businesses a fee for processing debit and credit card payments.

10. Bank makes money through ATM Transactions:

The straightforward ATM business model divides revenue equally among the ATM owner, the processor, and the vendor location. Each transaction entails a fee from the processor or bank. The cost varies greatly depending on the institution, but it’s not unusual for it to be between 20 and 50 cents. Most of the time, the vendor’s location also takes a portion. Banks generate revenue by charging users a fee to access ATMs and make cash withdrawals.

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