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Opinion
Matthew C Klein

How Our Big Banks Really Make Their Money

The eight biggest U.S. banks earned more than $80 billion last year, with much of that coming from government subsidies, according to a new report from the International Monetary Fund. 
We're starting to unravel the mystery of bank profits. Photographer: Scott Eells/Bloomberg
We're starting to unravel the mystery of bank profits. Photographer: Scott Eells/Bloomberg

The eight biggest U.S. banks earned more than $80 billion last year, with much of that coming from government subsidies, according to a new report from the International Monetary Fund. Worst of all, the Dodd-Frank reforms and Basel III regulations haven't done much to reduce these subsidies.

Banks make money by borrowing at lower interest rates than they earn on their loans and other assets. Banks' borrowing costs are lower than they might be otherwise because their debt is guaranteed by the government. Deposit insurance is an explicit form of government protection, and banks pay for it.