Magazine article American Banker

Comment: You'd Better Look before You Leap into Fee Income

Magazine article American Banker

Comment: You'd Better Look before You Leap into Fee Income

Article excerpt

By now most community bankers recognize the importance of fee income. They cannot live on spread alone, a point John Walker and Michelle Gula of BNK Advisory Group of Northampton, Pa., stressed in their chief financial officers workshop at a recent meeting of the Financial Managers Society.

Banks can no longer prosper by simply borrowing short and lending long, or even borrowing long and lending short, because volatile interest rates can make either of these policies risky. This is why many now rely on gap management, matching asset and liability maturities, to avoid serious losses when rates move. Such a policy is meant to prevent big losses, but it also prevents big profits, which is why fee income has become such an important alternative.

Mr. Walker and Ms. Gula, whose presentation drew heavily from a BNK study on fee-income generation, recommend that community bankers exploring noninterest income options consider whether their products are convenient and otherwise appealing, there is retail uniformity, their staff is capable, and their sales culture supports these initiatives (banks use one of four approaches to fees, the study says -- laissez-faire, hard-nosed, practical, and nice-guy). In other words, they urge community bankers to put a lot of thought into this -- it's good to recognize that you need this business, but it won't be a good business if you aren't prepared.

The BNK study lists eight service areas in which financial services firms operate: trust, insurance, capital markets, credit cards, currency desk, financial derivatives, security safekeeping, and retail investments. …

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