To day I was the guest/mark/victim of a Banking Lunch & Learn session thanks(?) to some networking at the last MBA Luncheon.

I decided that I wanted to learn about Bank Service Charges and so directed the conversation. My hypothesis is that the bank in question would remain a profitable corporation if they did not charge service fees on domestic personal accounts.

What do you think?

Here’s what I found out about a “Scotia” type of bank…
their 2004 Annual report states the following:
– Domestic Banking Earnings were 1.136 BILLION DOLLARS (page 19).
– Deposit and Payment Services profited $646 million(i.e. Income from
service Charges on their CONSOLIDATED income statement, page 89)

This was the response from an anonymous bank employee:

I just picked up a copy of the 2004 Annual Report and yes $1.136 billion (pg.19) was the earnings of the domestic banking group. We did collect $646 million in “deposit and payment services,”(pg.86) if we make the assumption that this is 100% service fees then: we collected 18.71% of employee salary/benefits from our clients in service fees, and paid the other 81.29% from other sources (investment income, capital gains, etc.) So assuming that the intent of service charges is to pay for the services provided (to pay salaries and property taxes, utilities, rent, equipment and communications (not including advertising,)) then the service charges fell short to the tune of $ 4.193 billion ($646,000 – $4,839,000)(calculated from info on pg.86).

Furthermore, the bank earned $12.177 billion in interest (on loans and securities) and paid out $6.312 billion in interest to our customers (pg.86).

In the grand scheme customers paid in $646 million and received $6.312 billion, not a bad return. Though of course this is the rich getting richer and the poor getting poorer. ($1 in service fees = $10 in interest.)

Is this really fair? Would society as we know it crumble if Canadians demanded that our banks funded 100% of their services with the profits they make from re-investing our money? Or would customers go crazy in a country of free transactions and overload the banks with trillions of transfers?