Both you and the author, while correct about many details, are completely wrong about the business model and economics of retail branch banking.
To be precise you are off by 100x or two orders of magnitude on the profitability of depositors to the branch. What you both missed is the biggest open secret in banking - the fractional reserve model.
Fractional reserve references the fact that banks don’t merely loan out depositor funds at a 3-5% spread. Instead they are required to keep at most 3% of depositor funds on—hand while they loan out the other 97% at a very profitable spread between interest charged on loans and interest paid to depositors.
For this reason every $1000 taken in by a branch allows them to make on average $97,000 in new loans. They pay the depositor 1% in interest on the $1000 deposit while charging 4-7% interest on approximately $97,000 in loans for a rough profit of almost $3,000-$6,000 for every $1000 deposited. Where does the $97,000 come from? It comes in the form of bank credit - literally numbers added in the bank’s computer.
This is one of the mechanisms of money creation. The other being sourced by the Federal Reserve when they purchase securities on the open market with money they create out of thin air. This is also what causes inflation, despite what politicians wish you to believe.
Banks do not operate as non-profits. They wouldn’t operate retail branches unless the economics warrant it, which they very much do.
To be precise you are off by 100x or two orders of magnitude on the profitability of depositors to the branch. What you both missed is the biggest open secret in banking - the fractional reserve model.
Fractional reserve references the fact that banks don’t merely loan out depositor funds at a 3-5% spread. Instead they are required to keep at most 3% of depositor funds on—hand while they loan out the other 97% at a very profitable spread between interest charged on loans and interest paid to depositors.
For this reason every $1000 taken in by a branch allows them to make on average $97,000 in new loans. They pay the depositor 1% in interest on the $1000 deposit while charging 4-7% interest on approximately $97,000 in loans for a rough profit of almost $3,000-$6,000 for every $1000 deposited. Where does the $97,000 come from? It comes in the form of bank credit - literally numbers added in the bank’s computer.
This is one of the mechanisms of money creation. The other being sourced by the Federal Reserve when they purchase securities on the open market with money they create out of thin air. This is also what causes inflation, despite what politicians wish you to believe.
Banks do not operate as non-profits. They wouldn’t operate retail branches unless the economics warrant it, which they very much do.