how a retail bank generates income
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 2this 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 3in the banking industry consumers also rely on the federal deposit insurance corp fdic to insure their bank deposits as of march 31 2023 the fdic insured 4 672 institutions commercial banks and savings banks the total amount of assets the fdic insured was 23 72 trillion and the total amount of loans and leases insured was 12 212 trillion 4types of retail banksretail banks come in a variety of types and sizes from local community banks which are small and locally run to the retail banking services of large global corporate banks such as jpmorgan chase and citibank as of march 31 2023 the top five largest u s commercial banks by assets were 5all these banks offer retail banking services which form a large portion of their revenue credit unions are another type of retail bank that works as a non profit cooperative where members pool their assets to be able to provide loans and other financial services to other members credit unions typically provide better interest rates for their members because they aren t corporate entities seeking profits and they don t have to pay corporate taxes on any earnings expanded services in retail bankingbanks are adding to their product offerings to provide a greater range of services for their retail clients in addition to basic retail banking accounts and customer service from local branch financial representatives banks have started offering teams of financial advisors with broadened product offerings investment services such as wealth management brokerage accounts private banking and retirement planning in the 21st century a movement toward internet banking has also broadly expanded the offerings for retail banking customers several banks now provide online services to customers solely through the internet and mobile applications limiting the number of times a customer needs to go to a local branch to do business in addition to traditional banks offering online services many new fintech companies have blossomed offering similar services with more ease and often at better prices as they don t incur the expense of needing traditional brick and mortar bank branches examples of these banks include n26 monzo and chime a chase survey released in early 2023 found that consumers overwhelmingly want to manage their banking activities in one place and prefer using their mobile apps to do this eighty seven percent of survey respondents said they use their banking app at least once a month or more they monitor account balances and deposit checks through their smartphone and may even apply for a mortgage that way 6retail banking vs corporate bankingwhile retail banking services are provided to individuals in the general public corporate banking services are only offered to companies and corporate bodies the scope of the products and services available is also different retail banking is customer oriented and corporate banking is business oriented the financial worth of transactions is comparably higher in corporate banking than in retail banking the source of profit is also different the difference between the margin of interest of borrowers and lenders is the main source of profit in retail banking while corporate banking s source of profit is the interest and fees charged on the services provided 7corporate banks provide businesses with the following services some corporate banks also have investment banking arms that offer related services to their corporate clients such as asset management and securities underwriters 