How does a Retail Bank generates income?
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A retail bank stores the cash deposits of its retail clients. It then uses these deposits to make loans to other clients. The Federal Reserve formerly required that all banks keep 10% of their demand and checking deposits in-house overnight—this was changed to 0% in March 2020.
This is known as the reserve requirement and is seen as a safety and liquidity measure. This means that the remainder of the deposit on hand is allowed to be lent out. The banks charge interest rates on these loans at a higher rate than they pay on customer deposits, which is how banks earn income.
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