Up until the 1970s, banking was known as a dull, sober profession. Banks accepted deposits from savers, and made loans from these "secured deposits"- loans to local businesses, loans for mortgages, loans for other purposes. All such loans went to "solid citizens", that is, citizens who could provide "collateral". "Collateral" meant that if you did not repay your loan, you had some other property the bank could sell to get its money back. In those days, it was customary for people who bought a house to make some significant down payment (say, 25%) from their own savings (further demonstration that they were likely to be "credit worthy")
The magic of "fractional reserves" meant that the bank earned interest on multiples of its original deposits, and eventually the loans on the mythical money were repaid in real money as well, adding to the "real" deposits. Profits were thus reliable, and large. Very few banks of this traditional sort now remain.
Traditional bankers represented themselves as being "advisors to their clients" This actually meant that they had a monopoly on information about the financial markets. When, with the advent of computers, it became possible to access such information independently, many giant corporations began to bypass "banking services". For example, General Motors began to issue "commercial paper". They borrowed large amounts of money at low interest for the short term. They loaned small amounts to large numbers of car buyers for the long term. Lenders were individual or organizations with very large amounts of money which they could park in a safe place overnight, or for a week or two The owners of large sums earned interest rather than having such sums "remain idle". General Electric took itself entirely out from under the need to use any bank, and so did many other powerful corporations.
In the face of this brutal new competition, traditional banks faced desperate straits. By 1980, one third of US banks had disappeared- merged or taken over. They fired 37 % of their employees between 1983 and 1993, replacing them with automated tellers. Loss of bank jobs has accelerated since, and this does not take into account the second wave of innovation which struck...the internet! Changes in legislation allowed the remaining banks to seek other ways of staying in business, and the best thing they found was the credit card.
Credit cards offer loans at very high rates, and don't pay much attention to the capacity of card holders to pay. Such interest income has become the chief income source for the banks. In the summer of 1998, Congress passed laws making declaration of personal bankruptcy more difficult. Economics professor Lawrence Ausubel of the University of Maryland documented the parallel between numbers of credit card solicitations and numbers of personal bankruptcies. (Congress did nothing to limit the solicitations.) In 1997 there were an average of 9 credit card solicitations per US household per 3 weeks. Unprecedented levels of personal bankruptcies in the US even prior to our recent financial collapse suggest that future growth in profit for the banks will not come from this direction. The growth in international use of credit cards will provide them with a breathing space.
In any case, depositing one's money in a bank (for the kind of trivial interest available from a bank), has become quite unwise. A look at long term inflation rates shows that the US dollar lost 50% of its value (maybe more) from WW2 to 1970 and a further 75% between 1971 and 1996. There has been some recent pause in this dire downward trend. For a while, real estate held up. There are bonds, there is the stock market. Whatever is one to do, who is in the happy position of having accumulated wealth? Wherever is one to put it safely?
