How Banks Work, How do banks make money?

What is a bank?

 The capital requirements to start a bank often vary greatly from state to state. In Florida, the suggested capital requirement is $6 million for a bank in a metropolitan area and $4 million for a bank in a rural area. In other states, such as New York, that amount might be $10 million or more for metropolitan areas. Those capital requirements are usually determined by your strategic plan and pro forma financial statements for the market you've selected.

As mentioned above, the organizing group may be responsible for 10 percent to 15 percent of that amount. The remainder is sold to shareholders. Organizing groups may shoot for 400 to 750 or more shareholders in order to raise the money needed to start the bank. Usually, the more shareholders a bank has, the better its chance of succeeding. 

How do banks make money?

Banks are just like other businesses. Their product just happens to be money. Other businesses sell widgets or services; banks sell money -- in the form of loans, certificates of deposit (CDs) and other financial products. They make money on the interest they charge on loans because that interest is higher than the interest they pay on depositors' accounts.

The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend. As we mentioned in the previous section, the amount available to lend also depends upon the reserve requirement the Federal Reserve Board has set. At the same time, it may also be affected by the funds rate, which is the interest rate that banks charge each other for short-term loans to meet their reserve requirements. Check out How the Fed Works for more on how the Fed influences the economy.

Indian Black money stocked in crores in foreign banks

New Delhi: In relation to the anti-corruption move by India, Names of ten corrupter’s including a Politician and corporate houses were unveiled for the first time in four years on Friday. The committee charged HSBC bank for supporting these money laundering banking transactions with Swiss Banks.
The IAC members daringly exposed that the Ambani brothers and Anu Tandon, congress MP stocked crores of rupees in Swiss banks bank on a list of account holders in HSBC banks operating in Switzerland.  The list that was released by the French government to India revealed no name and the matter is yet to be resolved over court.
Manmohan Singh’s government was also accused of guilty, for not charging on the banks involving in hawala transactions, by the members of IAC as this is a biggest threat for the economic status of the country.
When IAC members, Kejriwal and Prashant Bhushan spoke to the press, they voiced” These banks have made easy for people to open foreign bank accounts from the comforts of the home, they collect money from people’s residence and deposit its equivalent in dollars and Euros with the bank” This may also happen in the case of spreading terror within the country by maundering terrorist money, drug and ransom money, he added.
The activists also demanded to close the bank, and its employees to quit for the interest of the country with immediate arrest of those directly involved with this money laundering issues. Kejriwal also noted that Mukesh Ambani personally visited the ministry to not raid Reliance and he would compensate the deal with money. He also came out with a solution for this economic threat that Indians also enact a law enforcing foreign banks to give a list of Indian Account holder’s names.