Companies in this industry accept deposits and make commercial, industrial, and consumer loans. Major companies include Bank of America, Citibank, JPMorgan Chase, Wells Fargo, and Navy Federal Credit Union (all based in the US), as well as Banco Santander (Spain), HSBC Holdings (UK), China Construction Bank, and Industrial and Commercial Bank of China.
Demand for banking services is closely tied to economic activity and the level of interest rates. The profitability of individual banks depends on marketing skills, efficient operations, and good risk management. Large economies of scale exist in some segments of the industry, which has encouraged industry consolidation. While smaller banks and credit unions can compete successfully in segments where customer service or knowledge of the local market is more important, big banks are becoming increasingly dominant.
Products, Operations & Technology
Banks generate revenue mainly through interest income and service fees. Some banks also have significant revenue from investment activities. For commercial banks, interest income generates more than half of revenue. The level of interest rates is important to financial institutions because much of their revenue comes from the "spread" between the rate at which they can lend money and the rate they must pay to acquire money. When interest rates are high, the spread is usually high, increasing revenue. On the other hand, when interest rates are high, demand for loans usually decreases.