by Joanna Stavins
March/April 1999

Recent evidence shows that the supply of deposits to checking accounts is not elastic with respect to the interest rates paid. That suggests that the various features attached to checking accounts may be important in determining the supply of deposits and banks' revenues from the fees.

This study uses a national survey of checking accounts offered by financial institutions in 25 major metropolitan areas in the United States to analyze the effects of restrictions and fees imposed on checking account holders on the supply of deposits and on the banks' check fee revenues. The author places particular emphasis on relatively new restrictions designed to induce customers to adopt cost-saving behavior, such as restrictions on the return of canceled checks and on the use of live tellers. She finds the supply of deposits into checking accounts to be responsive to the bank's per-item fees, check return restrictions, teller restrictions, and foreign ATM fees. Because of this sensitivity of deposit supply, raising most of those fees was found to lower bank revenues from servicing the checking accounts. Only the fee on check return and the NSF fee were found to significantly raise bank revenues.

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