Why Do Banks Profit in Every Scenario? Uncovering the Mechanics Behind the Financial System
Omar Martir
3 min read
Introduction
Have you ever wondered why banks consistently turn a profit, even during economic downturns, high inflation, or political instability? While many sectors face hardship, banks continue to report positive results — year after year. In this article, we will unveil the inner workings of this seemingly invincible system, explaining clearly and accessibly why banks always make money and what you can do to protect yourself financially.
✨ 1. The Financial Intermediation Model: How Banks Make Money from Borrowing and Lending
Banks operate as intermediaries between those with money (savers) and those who need it (borrowers).
They pay low interest rates to depositors and charge high interest rates to those who take out loans.
The difference between these two rates is called the net interest margin (or spread), and it is one of the banks' largest sources of profit.
Fun Fact: Brazil has one of the highest net interest margins in the world, which significantly amplifies the profits of financial institutions in the country.
💳 2. Fees and Services: Guaranteed Bank Revenue Streams
Banks charge fees for practically everything: account maintenance, wire transfers, withdrawals, invoice issuance, and more.
Many customers continue to pay for monthly service packages they don't even use.
Additionally, they offer products such as insurance, consortiums, investments, and private pensions, which also generate recurring revenue for the financial institutions.
Tip: Review your bank statement and see if there are charges for services you don't use. Switching to digital accounts can be a free and efficient alternative.
🔁 3. Profits Even in Times of Crisis: Bank Resilience in Economic Downturns
When economic risk increases, banks adjust interest rates and credit requirements to compensate for potential losses.
They increase fee collection and reduce lending, maintaining financial equilibrium.
They rely on robust reserves, revenue diversification, and risk management to weather turbulence without losses.
Real-World Example: During crises like the 2008 financial crisis or the 2020 pandemic, central banks injected funds into the banking system to ensure liquidity, further strengthening these institutions.
⚡ 4. Technology and Automation: Boosting Bank Profitability Through Efficiency
The advancement of technology and automation has reduced the number of physical branches, cutting expenses on infrastructure and personnel.
Automated systems handle customer service, credit analysis, collections, and security.
Banking apps offer 24/7 services, further reducing the need for human operation.
Fun Fact: Major banks have saved billions by closing branches and digitizing processes in the last 5 years.
📊 5. Investments with Guaranteed Returns (for Them): The Bank's Role in Investment Products
When selling products like Certificates of Deposit (CDBs), Real Estate Credit Bills (LCIs), Agribusiness Credit Bills (LCAs), and funds, banks capture your money to lend to third parties at higher rates.
Even in conservative investment products, the real profitability for the bank is higher than for the investor.
Many funds still charge an administration fee, even with low returns.
Tip: Research independent brokerage firms with more profitable investment options and lower fees.
💰 6. Banks Profit Even from Your Late Payments: Interest and Fees on Delinquent Accounts
Overdue loans generate compound interest, fines, and additional charges.
Credit cards have extremely high interest rates that make debts unpayable if not settled quickly.
Renegotiated debts often end up generating even greater profits through new contracts with embedded interest.
Warning: Paying the minimum credit card bill is one of the worst financial mistakes that directly benefits banks.
🛑 7. How the System Favors Banks: Regulatory and Market Advantages
Banking regulations often benefit large institutions at the expense of small credit unions or fintechs.
The concentration of banking in Brazil means that five banks dominate more than 80% of the market.
This limits competition and keeps fees and interest rates high.
Fun Fact: Even with the arrival of digital banks, the profits of major banks continue to increase year after year.
🧭 8. How This Directly Impacts Your Financial Life: The Consumer's Perspective
You pay high fees and receive little return on your money.
High interest rates make it harder to get out of debt.
Banking products are not always the most advantageous, but they are widely offered.
Example: The average customer pays between $4 to $16 USD per month in bank fees — which represents up to $192 USD per year wasted.
✍️ 9. What You Can Do to Change This Logic: Taking Control of Your Finances
Compare financial services: digital banks, credit unions, and independent brokers offer better conditions.
Control your expenses, renegotiate debts, and avoid revolving credit.
Seek financial education and question the products that are "pushed" by your bank.
Practical Tip: Use free spreadsheets to organize your budget and apps that help monitor your spending.
🌟 10. Conclusion: Use the System to Your Advantage: Empowering Your Financial Decisions
Banks profit because they dominate the rules of the game — but that doesn't mean you always have to play on the losing team. With information and proactive steps, it's possible to minimize fees, avoid high interest rates, and seek fairer alternatives. The key is to understand how this system works and make more conscious decisions about your financial well-being.
❓ Frequently Asked Questions
Do banks always profit? Yes. Even in crisis scenarios, they adjust interest rates, cut costs, and diversify services to maintain profits.
How to avoid paying bank fees? Use free digital accounts and review your service packages. Many banks charge for services you don't use.
Is it possible to invest without using a bank? Yes. Independent brokerage firms offer good investment options with lower fees and more freedom.
What is the biggest mistake that makes banks profit from you? Using your overdraft facility, paying the minimum credit card bill, and accepting products without understanding their terms.
Do digital banks also profit? Yes, but with different models: fewer fees, less physical infrastructure, and a larger volume of customers.
