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How Banks Make Money: A Simple Breakdown of Key Business Lines
Understanding the Profit Models of Capital Markets, Personal Banking, Commercial Banking, Wealth Management, and Insurance
1. Capital Markets
What it does:
• Provides financial services to large organizations (like companies or governments), including raising money, trading stocks, and offering expert advice on big financial moves (like mergers or acquisitions).
How it makes money:
• Fees and commissions: When the bank helps a company raise money through stock or bond sales, it charges a fee for the service.
• Trading profits: The bank buys and sells financial products (e.g., stocks, currencies, bonds) and earns profits from the price differences.
• Advisory fees: Companies pay the bank for advice on mergers, acquisitions, and large investments.
Example: If a company wants to go public (IPO), the bank helps sell its shares and earns a commission.
2. Personal Banking
What it does:
• Offers financial services to individuals, such as savings and checking accounts, personal loans, mortgages, and credit cards. This is the kind of banking most people use every day.
How it makes money:
