The chicken or the egg? The trade-off between bank fee income and net interest margins

Barry Williams, Gulasekaran Rajaguru

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

This study considers the time series relationship between bank fee income and bank net interest margins in Australia, applying panel vector autoregressions to a unique, hand-collected dataset. Increases in bank fee income are being used to supplement decreases in net interest margins. The increase in magnitude of fee income associated with reductions in margin income is smaller than the decrease in net interest margins, resulting in a net wealth transfer favouring users of bank services; although not all users of bank services gained and/or gained equally. The overall increase in fee income is marginally greater that the reduction in margin income. It is argued that banks have responded to falling margin revenue by increasing their range of fee-based services, especially insurance. Increases in fee income are found to pre-date declines in margin income, thus Australian banks were pro-active in the process of disintermediation.JEL Classifications: G21, G11, C33

Original languageEnglish
Pages (from-to)99-123
Number of pages25
JournalAustralian Journal of Management
Volume38
Issue number1
Early online date10 Apr 2012
DOIs
Publication statusPublished - 1 Apr 2013

Fingerprint

Income
Fees
Interest margin
Trade-offs
Margin
Wealth transfer
Disintermediation
Vector autoregression
JEL classification
Bank relationships
Revenue
Insurance

Cite this

@article{f0157e9bfbfb4854b5cc9be8b8f0df20,
title = "The chicken or the egg? The trade-off between bank fee income and net interest margins",
abstract = "This study considers the time series relationship between bank fee income and bank net interest margins in Australia, applying panel vector autoregressions to a unique, hand-collected dataset. Increases in bank fee income are being used to supplement decreases in net interest margins. The increase in magnitude of fee income associated with reductions in margin income is smaller than the decrease in net interest margins, resulting in a net wealth transfer favouring users of bank services; although not all users of bank services gained and/or gained equally. The overall increase in fee income is marginally greater that the reduction in margin income. It is argued that banks have responded to falling margin revenue by increasing their range of fee-based services, especially insurance. Increases in fee income are found to pre-date declines in margin income, thus Australian banks were pro-active in the process of disintermediation.JEL Classifications: G21, G11, C33",
author = "Barry Williams and Gulasekaran Rajaguru",
year = "2013",
month = "4",
day = "1",
doi = "10.1177/0312896212440268",
language = "English",
volume = "38",
pages = "99--123",
journal = "Australian Journal of Management",
issn = "0312-8962",
publisher = "SAGE Publications Ltd",
number = "1",

}

The chicken or the egg? The trade-off between bank fee income and net interest margins. / Williams, Barry; Rajaguru, Gulasekaran.

In: Australian Journal of Management, Vol. 38, No. 1, 01.04.2013, p. 99-123.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - The chicken or the egg? The trade-off between bank fee income and net interest margins

AU - Williams, Barry

AU - Rajaguru, Gulasekaran

PY - 2013/4/1

Y1 - 2013/4/1

N2 - This study considers the time series relationship between bank fee income and bank net interest margins in Australia, applying panel vector autoregressions to a unique, hand-collected dataset. Increases in bank fee income are being used to supplement decreases in net interest margins. The increase in magnitude of fee income associated with reductions in margin income is smaller than the decrease in net interest margins, resulting in a net wealth transfer favouring users of bank services; although not all users of bank services gained and/or gained equally. The overall increase in fee income is marginally greater that the reduction in margin income. It is argued that banks have responded to falling margin revenue by increasing their range of fee-based services, especially insurance. Increases in fee income are found to pre-date declines in margin income, thus Australian banks were pro-active in the process of disintermediation.JEL Classifications: G21, G11, C33

AB - This study considers the time series relationship between bank fee income and bank net interest margins in Australia, applying panel vector autoregressions to a unique, hand-collected dataset. Increases in bank fee income are being used to supplement decreases in net interest margins. The increase in magnitude of fee income associated with reductions in margin income is smaller than the decrease in net interest margins, resulting in a net wealth transfer favouring users of bank services; although not all users of bank services gained and/or gained equally. The overall increase in fee income is marginally greater that the reduction in margin income. It is argued that banks have responded to falling margin revenue by increasing their range of fee-based services, especially insurance. Increases in fee income are found to pre-date declines in margin income, thus Australian banks were pro-active in the process of disintermediation.JEL Classifications: G21, G11, C33

UR - http://www.scopus.com/inward/record.url?scp=84875998036&partnerID=8YFLogxK

U2 - 10.1177/0312896212440268

DO - 10.1177/0312896212440268

M3 - Article

VL - 38

SP - 99

EP - 123

JO - Australian Journal of Management

JF - Australian Journal of Management

SN - 0312-8962

IS - 1

ER -