Bank's Approximate Profit Formula from Interest Rate Spread
A bank's profit can be approximated by leveraging the fact that its total lending is nearly equal to its total deposits. The formula calculates profit by multiplying the interest rate spread—the difference between the interest rate charged on loans and the rate paid on deposits—by the total volume of lending. The formula is:
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To approximate a bank's profit, the interest rate spread (the difference between the rate on loans and the rate on deposits) is multiplied by the total volume of deposits the bank holds.