Banks are intermediaries that take funds from those with money (depositors) and lend them to those who want it (borrowers). The difference between what a bank pays for deposits and what it collects on loans is called interest. Deposits can be from individuals and households, financial and nonfinancial firms, or government agencies. Banks also make investments in marketable debt securities, such as bonds.

The goal of banks is to profit from the spread between what it pays for deposits and what it charges on loans, plus a small amount from fees, such as checking account maintenance, credit card fees and fees charged by retailers who accept bank-issued cards. Banks are for-profit businesses that compete with other financial institutions such as credit unions, investment companies and brokerage houses for customers’ business.

Banks also serve as tools to accomplish economic policy goals, such as enforcing nondiscrimination and supporting local development. Whether or not governments use banks to advance these objectives depends on how well they manage risk and how much capital they hold to cushion against losses. All of these factors are considered when a government grants a charter to a new bank or decides where to relocate an existing one. A bank’s balance sheet consists of its assets (which include cash and investments, like U.S. treasury bonds), and its liabilities, which are the amounts that it owes to depositors and creditors (like loan repayments). The net worth of a bank is the difference between its assets and its liabilities.