Banks have increased revenues from service charges since financial crisis, find Cleveland Fed researchers
Banks have increased their revenues from service charges since the financial crisis, according to new research by the Federal Reserve Bank of Cleveland. This increase in service charges has helped some banks make up for drops in their largest source of revenue—interest income from loans, which has been impacted by the low interest rate environment that has prevailed over the past decade.
In a new Economic Commentary, Cleveland Fed researchers, Joseph Haubrich and Tristan Young, document how noninterest income and its components, including service charges, have changed over time, particularly in response to the financial crisis.
“Overall noninterest income as a share of bank revenue is lower than before the crisis, in part because of the collapse in securitization,” say Haubrich and Young. “However, service charges, one of the subcomponents of noninterest income, have increased.”
The data suggest that banks may also be relying more on noninterest income since the crisis. Once the researchers isolate service charges and exclude the parts of noninterest income most affected by the collapse of the financial markets, such as securitization, trading, and real estate, they found banks increased their reliance on service charges when their net interest margins were low, both before and after the crisis.
Read more: Trends in the Noninterest Income of Banks