That, in some sense, is what banking really is. Depositors “lend” the bank their money at whatever rate of interest the bank is offering. The bank aggregates all those deposits and then lends those funds in turn to a borrower. Theoretically the borrower is paying a higher rate of interest to the bank than the bank is paying to the depositor. Out of this so-called “spread” the bank must pay operating costs and, hopefully, turn a profit. By acting as an aggregator, the bank can lend much larger sums, and take on greater risks, than an individual would be able to do.
Liverlips McCracken Premium Member over 7 years ago
That, in some sense, is what banking really is. Depositors “lend” the bank their money at whatever rate of interest the bank is offering. The bank aggregates all those deposits and then lends those funds in turn to a borrower. Theoretically the borrower is paying a higher rate of interest to the bank than the bank is paying to the depositor. Out of this so-called “spread” the bank must pay operating costs and, hopefully, turn a profit. By acting as an aggregator, the bank can lend much larger sums, and take on greater risks, than an individual would be able to do.