Determinants of Bank Fee Income in the EU Banking Industry - Does Market Concentration Matter?

In this paper, we analyse the key determinants of bank fee and commission income in the European Union with a special emphasis on market concentration. On a sample of 258 EU banks during the 2007–2014 period, we apply System Generalized Method of Moments. First, we argue that the banks facing higher competition tend to expand more aggressively into non-traditional activities, and therefore they report a higher share of fee income in total income. Second, we found that a higher equity to assets ratio is related with higher shares of fee income since the bank needs more capital to prevent or manage the potential risks of the non-traditional activities. Finally, a high deposits to assets ratio tends to increase the fee income share, which may be possibly attributed to relatively high switching costs and to close depositor-bank relationship in the EU banks.