How a Bank Gets Its Money
By Laurel & Darian
Most banks are a corporation because they can raise funds be selling stock, and the corporation will be responsible for debt while stockholders with the bank will not be held responsible. Usually the founders of the bank will reserve some of the shares for themselves and sell the remaining to other individuals. In order to set up a state- chartered bank founders must follow state laws by contributing the minimum amount of financial capital.
Fractional Reserves Expand Bank Deposits
When the bank receives the new deposit or CD the bank must keep some of it for reserves. Banks use reserve requirement for the process of depositing, lending, and then redepositing again. These reserves can either be kept in the bank or at the Fed. The bank can continue this process until they are unable to make any more loans. The bank will also have to report its reserves and its demand deposits to the Fed regularly. Banks must do so because they are heavily regulated by the Fed, FDIC, and possibly state bank officials, this is to prevent another Great Depression from bank failure.
Loans, Investments, and Fees
Loans to businesses and consumers are a big part of a banks profits, but will also earn money from investments. Such as, extra funds that are not loaned out could buy U.S. bonds. But also fees contribute to bank funding, for example, when applying for a loan, or even withdrawing from your account a bank may charge on extra fees. This can be difficult of consumers but is helpful for banks.