Banking

A bank takes money from people who have extra (your deposits) and lends it to people who need it (mortgages, car loans, business loans). The bank pays you a small interest rate and charges borrowers a bigger one. The gap is its profit.

Modern banks also handle payments, run credit cards, provide investment advice, and trade securities. But the deposit-and-lend core is still where most banks make most of their money.

You deposit $100. The bank keeps maybe $10 in reserve and lends out $90 to someone buying a car. That person pays the bank back over time with interest.

Banks repeat this thousands of times a day. The key constraint is that depositors can ask for their money back any time, but the loans take years to be repaid. Managing that mismatch is the job.

Three main buckets. Net interest income (the rate gap above) — usually 50-70% of revenue. Fees — cards, wealth management, account services. And trading + investment banking — only matters for the biggest banks like JPMorgan and Goldman Sachs.

The mix tells you a lot about a bank's character. Regional banks live and die on net interest. Big universal banks are diversified across all three.

When the Federal Reserve raises interest rates, banks can charge borrowers more — and they tend to raise loan rates faster than they raise deposit rates. So in a rising-rate environment, the spread widens and banks make more money.

When rates fall, the opposite happens — but banks also tend to have more business as borrowing becomes cheap. Either way, what kills a bank isn't the level of rates, it's a sudden jump in either direction.

Big universal banks (JPMorgan, Bank of America, Citi) are diversified across consumer, wealth, trading, and investment banking. Tougher to disrupt but slower to grow.

Regional banks (PNC, Truist, US Bank) are simpler — mostly local deposits and lending. Higher growth but more exposed to one region's economy and to interest-rate swings.

Bank runs — depositors yanking money all at once — can kill an otherwise healthy bank in days. Silicon Valley Bank failed in 36 hours in March 2023 for exactly this reason.

Loan losses in a recession. Regulatory crackdowns after crises. And interest-rate moves that are too fast in either direction. Banking is a high-leverage business: a small change in any of these can wipe out years of profit.