Banking is the business of taking deposits from the public and granting loans, combined with payment services such as accounts, transfers and cards. In the EU, a credit institution is defined by doing both, accepting deposits or other repayable funds and granting credit for its own account, which requires a full banking licence and separates banks from payment and e-money institutions. Most revenue is net interest income, the gap between what loans earn and what deposits cost. Banks must hold capital against risk-weighted assets and meet liquidity ratios, and their depositors are covered by deposit guarantee schemes. Because new licences are slow, buyers often acquire existing banks, which requires prior supervisory assessment of any qualifying holding.
How do banks make money
Most bank revenue is net interest income: the gap between what a bank earns on loans and investments and what it pays on deposits. The rest comes from fees for accounts, cards, FX, payments and advisory work.
When a bank lends, it creates a deposit in the borrower's account, so lending expands the money supply. The constraint is capital and liquidity, not the deposits already on hand. An illustrative bank with €1 billion of loans at 6% and €900 million of deposits at 2% earns €60 million of interest and pays €18 million, leaving €42 million before costs and credit losses.
What makes a bank different from an EMI
An e-money institution or payment institution can hold client money and move it, but cannot lend it out and must safeguard it, typically in segregated accounts. Its customers' balances are not deposits and are not covered by deposit guarantee schemes. A bank can use deposits to fund loans, and its depositors are protected: up to €100,000 per depositor per bank in the EU, and up to £120,000 in the UK since 1 December 2025.
Banking licence requirements
Under the EU Capital Requirements Directive, a credit institution needs initial capital of at least €5 million, with member states allowed to set a minimum of €1 million for certain categories. Beyond that floor, the bank must hold capital against its risk-weighted assets, meet liquidity ratios, and have suitable shareholders and fit and proper management. A new full banking licence is the most demanding authorisation in financial services. Some jurisdictions offer a specialised banking licence with narrower activities and lower capital.
Buying a bank
Because new authorisations are slow, buyers often acquire existing banks. In the EU, anyone acquiring a qualifying holding in a credit institution, or increasing it past 20%, 30% or 50%, or that makes the bank a subsidiary, must notify the supervisor in advance. The supervisor has up to 60 working days from acknowledging a complete notification to assess the buyer, and can pause the clock once for up to 20 working days, or 30 for buyers from outside the EU, to ask for more information.
In practice, timelines run longer because the clock only starts once the file is complete. Diligence on a bank target focuses on capital adequacy, asset quality including non-performing loans, deposit concentration, AML findings and any supervisory measures in force.
See also: Specialized Banking License (Fintech Bank).