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How do banks make money? the fallacies of fee income

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  • Robert DeYoung
  • Tara Rice
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    Abstract

    In the first of two articles in this issue, the authors document the increasing importance of noninterest income at U.S. commercial banking companies and address two fundamental misunderstandings regarding this trend: the belief that fee-based activities provide more stable earnings than interest-based income and the belief that fee income flows chiefly from nontraditional, nonbanking activities.

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    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2004/ep_4qtr2004_part3_DeYoung_Rice.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2004)
    Issue (Month): Q IV ()
    Pages: 34-51

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    Handle: RePEc:fip:fedhep:y:2004:i:qiv:p:34-51:n:v.28no.4

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    Related research

    Keywords: Income ; Money ; Payment systems;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. DeYoung, Robert & Roland, Karin P., 2001. "Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 54-84, January.
    2. John H. Boyd & Mark Gertler, 1995. "Are Banks Dead? Or Are the Reports Greatly Exaggerated?," NBER Working Papers 5045, National Bureau of Economic Research, Inc.
    3. Kevin Stiroh, 2004. "Do Community Banks Benefit from Diversification?," Journal of Financial Services Research, Springer, vol. 25(2), pages 135-160, April.
    4. Hancock, Diana & Humphrey, David B., 1997. "Payment transactions, instruments, and systems: A survey," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1573-1624, December.
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    Cited by:
    1. Greg Caldwell, 2007. "Best Instruments for Market Discipline in Banking," Working Papers 07-9, Bank of Canada.
    2. Ugo Albertazzi & Leonardo Gambacorta, 2007. "Bank profitability and taxation," Temi di discussione (Economic working papers) 649, Bank of Italy, Economic Research and International Relations Area.
    3. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2007. "Securitisation and the bank lending channel," Working Paper Series 0838, European Central Bank.
    4. David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2009. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Working Papers Central Bank of Chile 555, Central Bank of Chile.
    5. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
    6. Goddard, John & Molyneux, Philip & Wilson, John O.S. & Tavakoli, Manouche, 2007. "European banking: An overview," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1911-1935, July.
    7. Farag, Marc & Harland , Damian & Nixon, Dan, 2013. "Bank capital and liquidity," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 201-215.

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