Where can we go from here?

REGULATORS ARE now grappling with increased pressure to manage the tendency of multinational banks to earn higher profits from fees. Very few would seek to expel such banks from the market in an attempt to lower fees, and even if they did, the consequence would be lowered competition in the local banking sector, which has been shown to cause heightened fees.

In addition, although higher standards of efficiency, solvency and liquidity, along with greater sophistication of the services supplied by the banking sector have been shown to be associated with higher profits from fees, regulators clearly would have no desire to reduce any such standards.

While these fees remain a pressing concern, CaPRI’s findings and analysis warn against the proposals to cap fees. This proposal have wisely been rejected in most countries. Regulators do not have any control over how banks internally allocate their costs between different products and services.

INCREASED LENDING RATES

Just as how the data showed that reduced net interest income led to increased reliance on fee income, a cap on fees is likely to cause banks to increase lending rates in a bid to maintain overall returns, in turn incurring higher borrowing costs. The results also suggest that popular efforts to force banks to provide customers with increased and more accurate and accessible information on fees, while increasing the cost of service provision, may precipitate an increase in fees, as banks seek to pass on the increased costs to consumers.

The analysis suggest that lobbying efforts by powerful persons and groups in society can yield some fruit in countries where such groups are highly regarded, as can increased assertiveness by local consumers. Ultimately, however, increased competition in the banking sector is needed if fees are to be lowered on a sustained basis.