Recent Trends in Retail Fees and Services of Depository Institutions
Hannan, Timothy H., Federal Reserve Bulletin
The availability of retail banking services and the fees that depository institutions charge consumers for them have received increased attention in recent years. This attention may have been prompted by the trend toward the separate pricing of services and changes in the environment in which depository institutions operate. Concern over the potentially adverse effect of one particular change in the regulatory environment--that of increased premiums paid for deposit insurance by depository institutions--led the Congress, in section 1002 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, to require the Board of Governors of the Federal Reserve System to report annually on discernible changes in the availability of retail banking services and in the level of their fees. Section 1002 further specified that the annual reports to the Congress 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 Federal Reserve has commissioned a survey and issued a report for each of the five years from 1989 to 1993.(1) All of these surveys were conducted by telephone with the same procedures and by the same private survey organization operating under contract with the Federal Reserve Board. To keep the length of the interviews manageable and to improve the accuracy of the results, they were conducted for only one product category at a time. With some variation in numbers from year to year, roughly 150 members of the Bank Insurance Fund (mostly commercial banks) and 180 members of the Savings Association Insurance Fund (mostly savings and loan associations) were chosen for each survey; they were picked randomly each year from each of seven regions of the country encompassing all fifty states and the District of Columbia and from five size groupings covering all institution sizes (see the appendix for more detail).
Statistical analysis of the survey results produced, for the entire population of banks and savings associations in the United States, estimates of the level of service availability and the level and incidence of fees at the time of each annual survey. This article reports a selection of those estimates for the 1989-93 period. In most cases, the change that occurred between the first and the last survey is also reported, along with an indication of the statistical significance of the change.(2)
Several findings are noteworthy. First, the availability of consumer services in general has not declined. Indeed, the availability of a few increased sharply. Second, observed changes in consumer fees varied substantially be type fo fee. Fees associated with special actions, such as those imposed on checks returned for insufficient funds, on overdrafts, and on stop-payment orders, exhibited consistently large increases that exceeded the rate of inflation; the evidence for other types of fees is more mixed (see box for data from another source on trends in overall revenue from fees on both consumer and business deposit accounts).
TRENDS IN THE AVAILABILITY OF SERVICES
Survey information on the proportion of banks and savings associations that offered various retail services over time is available for the following services: auto loans, non-interest-bearing checking accounts, negotiable order of withdrawal (NOW) accounts (which are interest-bearing checking accounts), savings accounts, money orders and cashiers checks, the return of canceled checks, automated teller machines (ATMs), and safe deposit boxes.
Data on checking and savings accounts include the availability of no-fee versions of those accounts. Cashiers checks are close substitutes for money orders, so the reported data cover the proportion of banks and savings associations offering either of these instruments rather than the proportion offering each.
Services at Banks
Throughout the five-year period, most of the above retail services were offered by more than 90 percent of banks (table 1). …