Retail Fees of Depository Institutions, 1994-99

Article excerpt

Timothy H. Hannan, of the Board's Division of Research and Statistics, prepared this article. Eli Mou provided research assistance.

The fees that depository institutions charge customers for the use of checking and savings accounts, automated teller machines, and other retail services have received substantial attention over the past decade. When the Congress in 1989 established assessment rules that were likely to raise the premiums that depository institutions paid for deposit insurance, a particular concern was that institutions might markedly increase retail fees or eliminate some services to offset their higher premiums. As a result of this concern, the Congress directed the Board of Governors of the Federal Reserve System to report annually on changes in the availability of retail banking services and in the level of the associated fees. The first survey on retail fees and services commissioned by the Board under the new law was conducted in 1989, and the results were reported in 1990; the most recent report, covering 1999, was released in July 2000.

The reports presented estimates each year of the proportion of all depository institutions that were offering various services, the proportion that were charging a fee for these services, the average level of the fees, and the changes in these estimates from the previous year. This article reports a selection of the estimates for each of the years from 1994 through 1999.(1)

Several findings for the 1994-99 period are noteworthy:

* Only a few of the fees and minimum balances associated with various types of checking and savings accounts changed over the period by statistically significant amounts

* Fees associated with several special actions--stop-payment orders, customer-written checks returned for insufficient funds, and overdrafts--increased by statistically significant amounts that exceeded the rate of inflation during the period

* The level of the most common types of transaction fees imposed for the use of automated teller machines (ATMs) increased by statistically significant amounts that substantially exceeded the inflation rate between 1994 and 1999, and the proportion of depository institutions assessing a fee ("surcharge") for use of their ATMs by nondepositors increased dramatically over the period for which the surcharge was tracked (1996-99).

The results of two other analyses, for banks alone, are also reported: (1) a comparison of fees charged by multistate banks (banks that are part of organizations with banking operations in two or more states) with those charged by single-state banks and (2) a comparison of fees charged by banks of different sizes. Such comparisons for each year of data give results that are broadly similar across the years. For ease of presentation, these comparisons are reported here for a single year (1999, the year of the latest survey):

* In a selection of the most common services and actions, multistate banks charged, on average, higher fees than single-state banks for almost all items. In most cases, the differences were statistically significant after controlling for the size and general location of the sampled banks

* Large banks charged higher fees, on average, than small banks did. The differences were statistically significant after controlling for the location of the sampled banks and for their status as either multistate or single-state banks.

BACKGROUND

In section 1002 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the Congress directed the Board to report annually on changes in the availability of retail banking services and in the level of the associated fees. Section 1002 further specified that the reports be based on annual surveys of samples of insured depository institutions that are representative of all such institutions in terms of size and location.

The sampled institutions were members either of the Bank Insurance Fund, a group consisting mostly of commercial banks (hereafter referred to as banks), or of the Savings Association Insurance Fund, a group consisting mostly of savings and loan associations (hereafter referred to as savings associations). …