Bank Job -- Addendum

"The public be damned, I'm working for my shareholders." -- William H. Vanderbilt, president of the New York Central Railroad in 1882.

  The primary directive of a bank is the same as any other business -- to earn a profit for its owners. To do this, they rent out money, in the form of cash lent to them by depositors, for which the bank pays interest. The bank, in turn, markets loans to other borrowers for a higher rate of interest. The difference, then, between the bank's cost of funds and the price it charges borrower-customers supports the bank's operating expenses.
   Thus, anything left over after paying employe salaries and other operating expenses is profit, which is distributed to shareholders. Banks can also obtain operating cash by borrowing from other banks or from a government-run central bank. In America, that's the Federal Reserve.
   Credit unions and other depositor-owned institutions redistribute excess funds to their owner-depositors in the form of interest on savings accounts. Often, these rates are higher than savings rates paid at commercial banks.
   The point is that bankers make money by acquiring and marketing other people's money. In recent years, financial institutions have rightly begun calling these arrangements "financial products."
   The downside is that they no longer think of what they do as providing services to the public. Instead, they are marketing and selling "financial products."