Banks are fighting pressure on several fronts. Lending is down, interest rates are at historic lows, and there’s been a decline in investment income.
“Fee income really has served to stabilize revenue in light of the volatile interest-rate environment of the past dozens years,” says Greg McBride, Bankrate.com’s senior financial analyst.
Big banks are also struggling with out-of-control costs, Moebs notes.
He says banks with assets of around $50 billion or more have exceeded their optimal efficiency level, which he places between $500 million and $5 billion.
“The big banks have gotten themselves in the mess that they’re in, and it’s a cost mess,” he says. “And that is something the average consumer and government officials don’t see. They’re always saying bigger is better. Bigger is not better.”
Taking all expenses into account, including salaries, buildings, and equipment, Moebs estimates that it costs a megabank $350 to $450 to maintain a checking account annually, compared with $175 to $240 for community banks and credit unions.
That “translates to higher fees, higher balance requirements, higher loan rates and lower deposits rates,” he says. That’s why, he says, overdraft fees for big banks average $35, compared with $28 for small banks and $25 for credit unions.
Scott Talbott, senior vice president of governmental affairs for the Financial Services Roundtable, an industry group, says it’s hard to compare institutions of such different sizes. “Banks compete with each other on a daily basis, and those competitive forces result in a wide-variety of products and services being offered to the consumer,” he says.
Analysis performed for Consumer Reports by Informa Research Services, a market-research firm in Calabasas, Calif., found other differences among the more than 1,000 financial institutions it tracks. For example, among those that charge a monthly fee for noninterest checking, the average was $10.27 at the largest 10 banks, compared with $7.45 at banks with less than $4 billion in assets and $6 at the 10 biggest credit unions. The fee was higher ($6.91) at credit unions that had assets below $4 billion than at the largest ones.
An Informa study published in The American Banker in July found that interest rates at community banks were lower than national averages for credit cards, home-equity loans, and lines of credit. But they were higher for five-year auto loans.
Bank of America’s debit-card-fee attempt caused particular outrage because customers didn’t like the idea of having to pay to get their own money, Hardekopf of LowCards.com says. “There’s no charge for writing a check, so why should there be a fee for me to access my own money to buy that tank of gas?” he asked.
David Darnell, co-chief operating officer of Bank of America, says it recognized customers’s concerns regarding the debit-card fee. “As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so,” he says.
But a study by the Research Intelligence Group, a market-research company in Fort Washington, Pa., found that customers don’t easily forgive. Almost a third of the respondents said they would leave their bank if it charged for debit-card payments, and two in five would harbor ill feelings even if the bank reversed the fees.
Matt McFarland, an attorney from Nashville, Tenn., abandoned Regions Bank last fall for a smaller bank when Regions imposed a monthly $4 charge on debit-card transactions. The bank reversed its decision and refunded charges to customers, but he isn’t eager to go back. “They said everyone is going to do this, which turned out to be wrong,” he says. “They were trying to put it off on Congress.”