I sat down with the 8 year old last week to lay out the terms of the new savings account she opened.
I gave her a VERY generous 1% per week deposit rate, or in other words 1 penny goes into the jar for every $1 she has saved. And she walked away with a free toaster.
After explaining the terms and dropping 5 pennies in the jar for her $5 balance, without missing a beat, she asked “Hmm…well……where does the bank get that money?”
Great Question.
How does the bank make it’s money
There are really two answers to this question-
The textbook answer
The honest answer
The textbook answer is something call Net interest Income or Net Interest margin.
This is the classic 3-6-3 spread on lending rates versus deposit rates. I’ll give you 3% interest if you deposit money with me. Then I’ll loan out the money at 6%, pocketing the 3% difference or the net…interest…income. There are fees collected, deductions made and write-offs along the way, but for a standard deposit institution this is the primary revenue generator we’re taught in school.
The honest answer is sales & trading.
The Real Money
I asked my “intern” to draw up some numbers. In FY2024, “banks” made a significant portion of their revenue from their sales and trading desks.
Goldman, unsurprisingly, made the majority of it’s revenue from sales and trading. This is largely due to their limited book of loans. Without retail banks on every corner, Goldman’s net interest income is limited in scale to Commercial Real Estate (CRE) Loans, Wealth Management Loans, Private Credit and a few other lines of business.
But JPMorgan, Citigroup, & Bank of America? Despite thousands of branches across the country, they still bring in a significant portion of their revenue from dealing desks and trading operations.
JPMorgan Chase alone has assets of $3.31 trillion. Over 4,700 retail branches in the United States. Over 15,000 ATMs nationwide, 18.5 million checking accounts and 25 million debit card users. It takes 250,355 employees (as of 2016) and operating in more than 100 countries to build that deposit volume for driving net interest income.
For comparison as of June 2025, Starbucks has 17,164 stores in the United States.
And yet ~500 guys in a Manhattan skyscraper bring in 39% of the revenue.
So where does the bank get its money? Not loans, not customers, not economy of scale, not even real estate (looking at you McDonald’s). It’s about 500 people dealing and making a spread across equities, FICC, derivatives, and other securities products which generates the cashflows and liquidity to pay those pennies on a deposit and make payroll for the other 200,000 employees.
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