How Banks Actually Make Money — Not Mostly Interest

JPMorgan Chase earned $57.0 billion in net profit in 2025, one of the largest annual profits ever reported by a bank anywhere. The interesting number is not that one, though. It is what sits underneath it.

That year JPMorgan booked $185.6 billion in managed revenue, and of that, $87.0 billion — roughly 47% — was noninterest revenue.

Read that again, because it inverts what most people assume a bank is. Nearly half the revenue of the most profitable bank on earth had nothing to do with lending money. It came from fees, trading, asset management and payments: the parts of the business that most customers never think about, and that nobody explains to them.

That split is not trivia. It is the single best predictor of what your bank will recommend to you.

Think of a bank as a supermarket

A supermarket buys a product cheaply and sells it dearer. That is the aisle margin. For a bank the product is money: it takes your deposit, pays you a little, lends it out and charges a lot.

But no supermarket survives on aisle margins alone. It earns at the checkout, in transaction fees. It earns from shelf placement, deciding which products get promoted and which get buried. And it earns from services you never notice: delivery, loyalty schemes, data.

A bank is built the same way, on three pillars.

Pillar one: interest

This is the one everyone knows. You deposit money, the bank pays you a small rate, and it lends that money out as mortgages, business loans and consumer credit at a much higher one. The gap is the net interest margin.

According to the FDIC, the US banking industry’s net interest margin hit 3.39% in the fourth quarter of 2025, the highest since 2019 and above the pre-pandemic average of 3.25%. European margins are structurally lower, and not because European bankers are worse at their jobs. It is a balance-sheet difference: American banks carry far more high-yield credit card debt, which means higher risk, higher yield and a wider spread.

The spread is not a trick either. The bank earns it by taking on real work — the risk that borrowers default, the mismatch between short-term deposits and long-term loans, the infrastructure that moves money at all.

Historically this was the whole story of banking. It is not any more.

Pillar two: fees, and this is the one that concerns you

Custody, advisory, execution, cards, accounts, asset management. Anything the bank does for you that is not lending or borrowing has a fee attached.

Again, these are not fraudulent charges. Custody means someone is legally responsible for safeguarding your securities. Advisory means analysts are paid to research. Execution means there is infrastructure routing your order to a venue. All of it genuinely costs money to run.

The scale is what deserves attention. At Deutsche Bank in 2024, commissions and fee income were €10.4 billion out of €30.1 billion in net revenues, about 35%, growing 13% year on year. That is the direction of travel across European banking: as interest margins normalise, fee income becomes the growth engine. Which in practice means more product recommendations, more wealth-management pitches, and more reasons to understand what you are being sold.

Pillar three: trading and treasury

Nobody thinks about this one. Banks buy and sell currencies, bonds and derivatives every day, sometimes for clients hedging a real exposure and sometimes to manage their own balance sheet.

They also act as market makers. When you click Buy, someone has to be on the other side, and often it is a bank: holding inventory, quoting prices, absorbing the imbalance.

This is easy to sneer at and it should not be. Without market makers there is no instant execution, prices gap around violently, and small orders sit unfilled. The liquidity you take for granted is a product somebody manufactures. (How that works for your order specifically is a story of its own.)

The number that shows how the bank earns from you

Here is the arithmetic that changes how you hear the phrase “we’d recommend…”. It is illustrative and the assumptions are stated openly, because your own numbers will differ and you should check them.

You invest €10,000 in your bank’s own active fund.

• Front-end load, typically around 5% → €500 on day one
• Annual charge, typically 1.5–2% → another €150–200 in year one

The bank’s first-year revenue: roughly €650–700.

Now the same €10,000, at the same bank, into an ETF.

• No front-end load
• Annual charge around 0.2% → €20 — and it goes to the ETF provider, not the bank
• The bank keeps an execution fee and custody → perhaps €50–170 in year one

The bank’s first-year revenue: roughly €50–170.

Same customer, same money, same institution — and roughly an order of magnitude difference in what the bank earns. Not a rounding error and not a matter of taste. A factor of ten.

Which raises a question worth sitting with:

When did your bank adviser last sit you down and say — actually, in your situation, an ETF would serve you better?

Probably never. Now you know why.

And underneath that, a second layer: retrocessions

When your bank sells you a third-party fund, that fund pays the bank a recurring commission, every year, for as long as you hold it. It comes out of the fund’s management fee, which means you pay it whether or not you ever see it named.

Under MiFID II, Article 24, this must be disclosed to you: before you buy, and annually thereafter. Disclosure is not the same thing as attention, though. The document exists, almost nobody reads it, and very few advisers point at it.

The fair version of this argument

I want to be precise here, because the lazy version of this story is a conspiracy and the lazy version is wrong.

Your bank is a business. It has shareholders and revenue targets. Recommending the product that generates more revenue is not corruption; it is commercial logic behaving exactly as designed. And the bank really does deliver the services it charges for.

But there is a word for the gap between what is best for you and what is most profitable for them. The word is misalignment, and knowing it exists is not cynicism. It is literacy.

The systems that tried to remove that gap teach an uncomfortable lesson. The United Kingdom banned commission payments for retail investment advice in 2013. Product costs came down, and advice promptly became expensive enough that a large part of the population simply stopped receiving any at all. Germany kept commissions and remains overwhelmingly commission-based. Neither country has solved it. There is no clean system, only an informed customer.

Three things you can actually do

CHECK — read three lines of your bank’s annual report

It is public, and every listed bank publishes it. Find net interest income, fee and commission income and trading income.

A bank earning most of its money from fees behaves differently from one earning it from interest. The first sells products, the second sells loans, both are legitimate, and now you know which one is talking to you.

UNDERSTAND — ask which pillar the recommendation feeds

Every time a product is recommended, one question:

• Their own active fund? → Pillar two. The bank earns a large multiple of what it would from an ETF.
• A third-party fund? → Pillar two again, via retrocessions, every year you hold it.
• An ETF? → Almost nothing.

This does not make the recommendation wrong. It means the incentive is not neutral, and you should weigh it accordingly.

APPLY — ask for the ex-ante cost disclosure

This is the one thing to do this week. Before you buy anything, ask for the ex-ante cost disclosure. In the EU your firm is legally required to give it to you, under MiFID II and Commission Delegated Regulation (EU) 2017/565, Article 50.

It lists every fee, every commission and every third-party payment in euros, not percentages. Percentages hide; euros do not. Then look up a comparable ETF and compare the totals. The difference between those two numbers is the price you are paying for the advice, and whether that is worth paying is your call. You should at least be the one making it.

The thing worth remembering

Interest, fees, trading. Three pillars, all legitimate, none of them hidden.

But the balance is shifting. Record interest margins are normalising and the pressure to grow fee income is intensifying, which means the next few years will bring more recommendations, not fewer.

The next product your bank suggests is not a scandal. It is business, and it is simply not neutral advice.