banks make money off of
a) Deposit interest - which include retail and commercial deposits (typically required of those who they also lend to)
b) Loan interest
c) Fee income - overdrafts, checks, etc
d) Ancillary product sales/commissions like insurance, annuities, securities, etc.
e) Investment income/portfolio returns
Without customers they get no a, b, c or d and hence little e
A bank’s business model is built on lending.
They are paid not only loan interest but also loan principle. Letting debts run off means receiving loan principle back, not merely interest. It builds liquidity, and loan principle fully repaid cancels liabilities while realizing assets at full par value. In today's rate environment, it can also be reinvested extremely profitably.
Banks and other financial firms can invest in existing securities purchased at steep discounts and high interest rates, without making net new loans. This is easy because other holders of debts that involve any credit risk are selling hand over fist, scrambling to get into either treasuries or bank deposits, the latter to exploit their FDIC guarantee.
Thus, right now banks can meet their liquidity needs and increase their income simply by letting their debtors repay them on schedule, and parking the proceeds in existing distressed securities. This will be much more profitable in the medium term than forcing loans onto reluctant overstrapped deadbeats in response to some nonsensical government mandate.
Corporate bonds pay 9%, bank deposits cost them 2%. Spreads that wide make for healthy banking. Consumer loans at 5% with loan losses at record levels, are not nearly as attractive.
The simple truth is that unless the better corporate credits are all willingly "bid" by others to low rate spreads, there is no great reason for banks to lend to joe deadbeat.