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.