What typically constitutes the primary source of revenue for banks?

The primary source of revenue for banks typically comes from interest income on loans. When banks issue loans to individuals and businesses, they charge interest on these loans. This interest is a major component of a bank's earnings, as it represents the cost to the borrower for using the bank's funds. The difference between the interest that banks pay on deposits and the interest they receive from loans is known as the net interest margin, which is crucial for a bank's profitability.

Interest income is fundamental to the banking business model, as it fundamentally relies on borrowing and lending activities. This revenue stream is consistent and substantial, often outweighing other sources of income such as service fees or investment income. While banks do earn income from service fees (like account maintenance fees) and investment activities (such as trading or managing assets), these are usually secondary sources when compared to the robust revenue generated from loan interest, highlighting the importance of lending as a core banking function. Government grants, on the other hand, are not a typical source of revenue for banks, as banks generally operate independently within the commercial sector.