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How do banks make money? the fallacies of fee income

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  • Robert DeYoung
  • Tara Rice

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.

Suggested Citation

  • Robert DeYoung & Tara Rice, 2004. "How do banks make money? the fallacies of fee income," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q IV), pages 34-51.
  • Handle: RePEc:fip:fedhep:y:2004:i:qiv:p:34-51:n:v.28no.4
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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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    References listed on IDEAS

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    1. John H. Boyd & Mark Gertler, 1994. "Are banks dead? Or are the reports greatly exaggerated?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 18(Sum), pages 2-23.
    2. 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.
    3. Kevin Stiroh, 2004. "Do Community Banks Benefit from Diversification?," Journal of Financial Services Research, Springer;Western Finance Association, 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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    Keywords

    Income; Money; Payment systems;

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