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In this video, our Head of Research, Sarah Kocianski, unpacks exactly how banks make money - with the handy edition of a super cool lightboard!
Fractional-reserve banking, the most common form of banking practiced by commercial banks, involves banks accepting deposits from customers and making loans to other borrowers - while holding in reserve a fraction of the bank's deposit liabilities. The vast majority of interest made on loans is kept by the bank, and then a small amount of savings rate interest is given back to the customer for keeping their deposit with the bank.
