Non-interest income

There are two common measures of the income banks generate from sources other than interest: the non-interest income level and the fee income level.

Different banks have very different sources of income. This in turn means they have different profit drivers.

Interest income is influenced by both the economic cycle and the level of interest rates. Fee income is cyclical. Non-interest income other than fees (primarily bank charges) is comparatively defensive.

Non-interest income level

The non-interest income level is:

non-interest income ÷operating income

This measures total non-interest income as a proportion of operating income; it shows what proportion of profits come from all sources (including fee income) other than interest spreads.

Fee income level

The fee income level is:

fee income ÷operating income

Fee income covers most income which is neither interest income nor bank charges. This includes a wide range of sources of income including fund management fees, loan arrangement fees, fees for advice, trust and custody fees, and commission on sales of third party financial products such as insurance.

Advice is a very important source of income for investment banks that make money advising on mergers and acquisitions and similar transactions.

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