According to Victor Sperandeo, US Banks can borrow from the Fed below 0.25% and buy 2-year Treasury Notes yielding 0.81% without any reserve requirement. They can lever this investment 100 to 1 (maybe higher) if they want and it’s a riskless trade. If rates go higher, the banks just hold the Notes until they mature.
They also don’t need an underwriting department for this, so they can lay off personnel. Since this is so lucrative, and riskless, and can be done with lower overhead, you can see why banks will be reluctant to lend money to small business owners or anyone without an 850 Fico score.
Depositors are the ones fueling this trade by leaving their funds on deposit at the banks. But they’re effectively taxed at a rate of 100% since they are not getting any yield on their money.