What Is a Bank's Spread?
What is a bank's spread?
It's the difference in the interest rate the bank earns on loans and the interest rate it pays to its lenders and depositors.
Sounds intimidating, right?.
It's fairly simple.
Even beyond its simplicity, we'll show you how this is useful to understand when your bank stocks report earnings.
Let's start here: A business needs to profit.
The name of the game?
Take in more money than it spends.
Generally, money in minus money out equals net money generated by the business.
Well banks operate in lending and borrowing markets, so let's just transfer business 101 over to a bank's model.
A bank lends to you the home buyer, you the car buyer, you the business owner, or with some of the banks, big corporations who need the financing for profit generating projects.
But it has to borrow money to lend money.
It can't just lend its own cash and only see the full amount come back in years.
Now, to see the rest of how this works, watch the quick video above.
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