Commercial banks make profits primarily through:
A) the interest differential between deposits and loans.
B) interest paid on deposits.
C) interest paid on required reserves.
D) bailouts by the Fed.

Question

Quizplus · Accepted Answer

Commercial banks make profits primarily by charging higher interest rates on loans than the interest they pay on deposits. This difference in interest rates is called the interest differential or net interest margin. Option B is incorrect because banks do not make a significant profit from interest paid on deposits. Option C is incorrect because banks do not pay interest on required reserves, but instead hold them at the Federal Reserve. Option D is incorrect because while some banks have received bailouts in the past, this is not a reliable source of profit for commercial banks.

Commercial Banks Make Profits Primarily Through