Academic journal article Federal Reserve Bulletin

Statement by Susan M. Phillips

Academic journal article Federal Reserve Bulletin

Statement by Susan M. Phillips

Article excerpt

I am pleased to be here today to discuss the trends in retail fees and the availability of retail services at depository institutions. The information that I will describe today was obtained from annual surveys sponsored by the Federal Reserve System.

Before presenting the results, let me first note the original purpose of the surveys and explain how they are conducted. The Board instituted this effort to meet the requirements of section 1002 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The Congress required that the Board report annually on discernible changes in the cost and availability of a wide variety of retail banking services to assess the extent to which increased deposit insurance premiums might be passed on to retail customers in the form of reduced availability of services or increased service fees. The Congress further specified that these annual reports be based on annual surveys that use samples of insured depository institutions that are representative in terms of size and location. Surveys meeting these requirements have been conducted for each of the past five years. Copies of all the resulting reports to the Congress, which contain substantially more information than I will have time to present today, have been made available to the committee.

The most recent of these reports found that the availability of the majority of retail services examined did not change appreciably between 1992 and 1993, with the few instances of improved availability outnumbering those of reduced availability. A general trend in the direction of increased fees was also observed, with twenty-four out of forty-four estimated fee changes representing fee increases greater than the rate of inflation and the remainder representing either increases less than the rate of inflation or, in a few cases, fee decreases. These observed changes in fees are similar to those found and reported in earlier years.

Deposit insurance premiums have increased over the years, so that these fee increases do correspond with an increase in deposit insurance premiums. It is, however, difficult to determine with any certainty the extent to which the increase in deposit insurance premiums caused fees to increase because changes in other factors could also have played a role.

The survey data were obtained through telephone interviews conducted by a private survey organization under contract with the Board. The number of institutions surveyed each year has been approximately 150 banks and 180 savings associations, with some minor changes from one year to the next. These institutions are chosen randomly each year from each of seven different geographical regions of the nation and from five different size groupings. The results reported in tables 1 through 4 are not simply averages of the fees and service availability observed for the sampled institutions.(1) Instead, they are weighted averages in which the weights are determined by the region of the country and the size classification from which each institution is drawn. This procedure is analogous to that typically used in public opinion polling. The result in this case, we believe, is a better estimate of what is true of the entire population of banks and savings associations.

In assessing observed changes from one year to the next, it is important to note that institutions surveyed were not, in general, the same in each of the years covered. In addition, changes observed from one year to the next may reflect differences in the sample drawn, as well as in the true trend over time. This problem tends to be more severe in the case of data items for which few financial institutions are observed. If, for example, only 10 percent of financial institutions offer a particular retail service, few observations of financial institutions in the sample can be used to estimate the average fee for that service, and the sampling error will be large. …

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