Cash Management Fees Leveling off, Survey Says; Findings Indicate Charges Are High Enough Now to Cover Costs
Ferris, Tom, American Banker
Cash Management Fees Leveling Off, Survey Says
NEW YORK -- The fees banks charge for cash management services rose a modest 2.7% in 1985, a dramatically smaller increase than in the two previous years, according to a survey by a Chicago-based consulting firm.
Companies that pay for operating services by leaving noninterest-bearing deposits at their banks in effect experienced about the same increase in charges, said Anthony J. Carfang, a principal of the firm, Treasury Strategies Inc.
The findings, which were uniform across the country, indicate that large cash management banks believe they have raised prices sufficiently to reflect the explicit costs of providing operating services, he said.
In the early 1980s, operating services such as remittance processing and account reconciliation were commonly offered at low prices to attract and maintain lending business.
But narrowing profit margins on commercial loans, coupled with the implementation of explicit charges for the operational services the Federal Reserve System provides to financial institutions, prompted a series of price boosts. According to Treasury Strategies, fees increased 18.3% in 1983 and 13.3% in 1984.
The first sign of a slowdown came in 1984, Mr. Carfang said. Even though prices at regional banks jumped by 21.3% that year, increases at the trendsetting money center banks averaged just 6.5%.
Last year, both categories had increases of only 2.7%. That probably means that there is "an acceptable relationship" between current prices and bank operating costs, he said. For some institutions, those prices are made up of expenses plus a profit. For others -- which still count on the services to generate other profitable business -- the charges might not recover all costs.
Because the increase was uniform across the country, competitive pressures evidently were not a major factor behind the slowdown in price boosts, according to Mr. Carfang. Any increases in competition probably would have had an impact on prices in specific regions, but that did not happen, he said.
But even though prices have leveled off, Mr. Carfang thinks the trend will not last. "We feel this is a temporary plateau," he said, noting that most banks have yet to include in their fees the indirect costs of providing cash management products. …