Posted on: Sunday, June 29, 2003

Bank fees are boosting bottom line

By Jeff McKinney
Cincinnati Enquirer

Higher ATM fees. Ten dollars for a copy of a printed account statement at a branch, something that used to be free. Costs to cover bad checks or stop-payment orders rising at double-digit rates.

The economy's struggling, yet the nation's banks have no problem making money. In fact, the industry is on pace in 2003 to hit its fourth consecutive year of record profits, largely by charging higher fees.

"There has been a greater reliance by banks on fee income to diversify the earnings stream," said Greg McBride, a financial analyst at Bankrate.com.

Consider:

• Fee income made up 42 percent of American banks' $408.5 billion in revenue for 2001, the most recent figures available, according to the Federal Deposit Insurance Corp. In 1977, fee income accounted for 18 percent of the industry's $46 billion in revenue.

• From 1995 through 2001, fee income as a percentage of banks' total profits rose from 35 percent to 50 percent, says R.K. Hammer Investment Bankers, a Thousand Oaks, Calif.-based firm that tracks credit-card and banking-related fees.

• Average fees for 11 out of 13 of the most basic banking services — from no-interest checking accounts to ATM surcharges for non-customers — have significantly jumped from 1996 through 2002, according to surveys by the Federal Reserve.

It cost an average $21.73 to cover a bounced check in 2002, up from almost $16.99 in 1996.

Bankers say the increases offset the rising cost of providing more convenience. They also say most people can avoid the fees by shopping around for banks that impose small or no charges for checking accounts or ATM use.

Consumer advocates and analysts contend that banks will continue to raise fees because the fees have become a reliable source of income amid economic downturns and fluctuations in interest rates.

But R.K. Hammer, president and chief executive at R.K. Hammer Investment Bankers, said banks are walking a fine line.

"They have to keep raising fees to satisfy investors who want higher and higher returns," he said. "Yet they're charging higher fees to consumers providing that income, and potentially risk losing those customers."