I don't think this duplicates Why do banks give small APR loans, because I'm asking HK, and APR = 3% here not $4%.

I screenshot picture beneath from HSBC HK. Scroll down a quarter of the way, and click on 'Rates' to download that PDF. I ask just about the last line on loans under red horizontal line.

enter image description here

Canadian ETFs with MERs < 0.15% like XUS (iShares Core S&P 500 Index ETF) can probably outstrip an APR of 6%.

  1. Thus why would a wealthy bank loan at APRs < 6%?

  2. Conversely, why don't they charge more than 6%? Why not charge the opportunity cost of loaning, that is, the APR gained from investing in a relatively safe ETF like XSP?

Furthermore, HSBC HK probably has PhDs in math like James Simons who can invest in alternative investments that can yield a higher rate of return for the same risk.

  • 4
    What did the ETFs return in 2008-09?
    – jamesqf
    Commented Nov 17, 2019 at 2:42
  • 1
    "Why do banks loan at APR ≤ 3%, rather than investing that principal in ETFs?" Because that's what business they're in.
    – RonJohn
    Commented Nov 17, 2019 at 3:00
  • 6
    If the ETF fails to pay, the bank can't repossess its house.
    – The Photon
    Commented Nov 17, 2019 at 3:05
  • I suspect HSBC holds both loans and market securities (maybe or maybe not ETFs) on it's balance sheet every minute of every day
    – user662852
    Commented Nov 17, 2019 at 13:33

4 Answers 4


The sort answer is because the banks create money through lending, and bank lending is fundamental to a prosperous economy. They are not allowed to create money to invest in equities or ETFs. Investment banking is funded by a bank's funds available for investing.

Perhaps because we have lived through a decade of quantitative easing by the central banks, younger generations are under the impression that it is the central banks that create money. Well they do to some extent, but the vast majority of money creation is brought about through bank lending.

A quick internet search finds this summary of the current state of affairs, which includes the following description :

How is money created? Some is created by the state, but usually in a financial emergency. For instance, the crash gave rise to quantitative easing – money pumped directly into the economy by the government. The vast majority of money (97%) comes into being when a commercial bank extends a loan. Meanwhile, 27% of bank lending goes to other financial corporations; 50% to mortgages (mainly on existing residential property); 8% to high-cost credit (including overdrafts and credit cards); and just 15% to non-financial corporates, that is, the productive economy.

  • Fractional banking?
    – RonJohn
    Commented Nov 17, 2019 at 23:52
  • @RonJohn Yes, one aspect of factional reserve banking relates to lending. I believe that currently, for each $10 of reserves, banks can create about $90 through lending. Nice job if you can get it.
    – not-nick
    Commented Nov 18, 2019 at 2:30
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    The answer is skipping the simple fact that they are not doing it because of regulations. They are simply not ALLOWED to do it. Investment and borrowing side are not allowed to intermingle in the USA these days, not primarily because of "history" or "business" but because of LAW.
    – TomTom
    Commented Nov 18, 2019 at 14:53
  • 1
    The point here is fully segregated. So, you can not just take the funds and invest them in ETF. You CAN use part of YOUR capital (as bank) to possibly run that in a trading desk under EXTREMELY good risk management to make sure it does not spill over, but that "is it".
    – TomTom
    Commented Nov 18, 2019 at 18:08
  • 1
    @EllieKesselman Hi, Yes the question tag does include Hong Kong, however the products referred to are Canadian ETFs and HSBC is a British bank with international reach, so I had assumed that he was referring to HSBC Canada, perhaps mistaken in believing HSBC is an HK bank..
    – not-nick
    Commented Nov 24, 2019 at 16:14

Because of risk.

A norma lbank is in the credit business - it is VERY controlled in what risk it can take these days. Investing in Stock ETF is jsut not compatbile with the risk profile a bank (which is EXTREMELY highly leveraged) can take.


Take a simple example of a bank that is able to led 5x its deposits to lend as standard home mortgages (leverage is much more complex than this in modern banks but does fine for a toy example).

Assuming they pay 1% on these deposits and loan out at 3% and no one defaults. For every $100 deposited the bank makes:

-$1 in interest paid to the depositors ($100 * 0.01)

+$15 in interest from the mortgage buyers (($100*5) * 0.03)

For a total return of $14 on the $100 in deposits they had to hold, or 14%, at a much lower risk profile* than a standard stock ETF. As a result of the leverage structure they are making a lot more than just the headline interest rate on their capital.

*supposedly/usually/lol who cares the public will pay if our models are wrong anyway

  • You may have a mistake: it's not 5x deposits, but 5x reserves. When a bank issues a mortgage this creates both mortgages and deposits at the same time, so mortgages < deposits (until the money is transferred away to another bank, and the reserves with it, and then the bank had better still have the needed reserve ratio) Commented Jul 13, 2022 at 11:24
  1. Thus why would a wealthy bank loan at APRs < 6%?

Because it is lending almost none of its own money. Banks lend the money that's on deposit based on a "reserve" formula. Depositors deposit $100, the bank lends $900.

  1. Conversely, why don't they charge more than 6%? Why not charge the opportunity cost of loaning, that is, the APR gained from investing in a relatively safe ETF like XSP?

Competition from other banks. I can't effectively lend money at 10% if someone else is lending at 6%.

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