How do banks typically generate profit?

Banks primarily generate profit through the practice of differing interest rates for borrowers and savers. This is known as the interest rate spread or margin. When individuals deposit money into a bank, they are typically paid a lower interest rate on their savings. Conversely, when the bank lends money to borrowers, it charges a higher interest rate. The difference between the interest earned on loans and the interest paid on deposits constitutes the bank's profit.

This model allows banks to utilize the deposits received from savers to fund loans for borrowers, enabling them to perpetuate their lending activities and generate revenue from interest income. It is a fundamental aspect of how financial institutions operate within the economy.

In contrast, the other options do not effectively describe how banks operate to generate profits. For example, matching savings and loans at equal interest rates would not yield any profit, while charging lower interest rates than what they pay savers would lead to losses. Investing in stocks, while a common activity for some banks, is not the primary means by which they earn profits compared to the interest rate spread from loans and deposits.