Why would they issue stuff? You are right, if they were just funding loans they would just drum up some more deposits at under 1% yields. However, preferred stock is a very different animal. Banks are required to keep themselves within certain ranges of % equity on their own balance sheets or they get in trouble with their regulator(s). Preferred stock gets counted as a form of equity, so this is a way to raise capital for the bank.
What are the risks? You would be buying what looks a lot like a bond, but it is very deeply subordinated to everything else. If the bank gets into trouble you can probably kiss your investment goodbye. The other risk is that these securities either have very long maturities or are perpetual (no maturity). If rates rise, you get whacked. Finally, they are usually callable after 5 or so years. If rates fall, your upside is capped.