True or False: It is illegal for banks to charge higher interest rates for loans than they pay depositors.

True or False: It is illegal for banks to charge higher interest rates for loans than they pay depositors.

• A. True
• B. False
• C. Only in certain states
• D. Depends on the type of loan

Answer: (B)

The statement is false because banks operate under a framework that allows them to charge higher interest rates on loans than they provide for deposits. This difference forms the basis of a bank's profit model, known as the interest rate spread. Banks lend money at higher rates than what they pay to depositors as compensation for the risk taken, operational costs, and for providing the service of lending. This practice is regulated by laws and guidelines, but it is not inherently illegal. The specific interest rates charged can vary based on market conditions, the creditworthiness of borrowers, and the type of loan. Thus, it is a standard and legal part of banking operations for banks to assess interest rates that are higher for loans than what they offer on deposits.

The statement is false because banks operate under a framework that allows them to charge higher interest rates on loans than they provide for deposits. This difference forms the basis of a bank's profit model, known as the interest rate spread. Banks lend money at higher rates than what they pay to depositors as compensation for the risk taken, operational costs, and for providing the service of lending.

This practice is regulated by laws and guidelines, but it is not inherently illegal. The specific interest rates charged can vary based on market conditions, the creditworthiness of borrowers, and the type of loan. Thus, it is a standard and legal part of banking operations for banks to assess interest rates that are higher for loans than what they offer on deposits.