Banking Practice Exam

The primary revenue source for the majority of banks is loan interest. Banks operate on a model that involves borrowing and lending money. When a bank issues loans to consumers or businesses, it charges interest on the borrowed amount. This interest is a significant portion of the bank's income.

The interest rates on loans tend to be higher than the interest banks pay on deposits, allowing them to profit from the difference, known as the net interest margin. This model can include various loans, such as mortgages, personal loans, auto loans, and business loans. As a result, the steady demand for loans ensures that interest income remains a critical aspect of a bank's overall revenue stream.

While check-processing fees, earnings credits, and investment income from deposit balances are indeed sources of income for banks, they generally contribute far less to overall revenue compared to the substantial amounts generated from loan interest. This dependency on loan interest underscores the fundamental role of lending in a bank's business model and profitability.