Banks the world over are asked why they charge their retail customers so much. In the European Community, several price comparisons have been made for individual products, but no one has yet analyzed overall costs for the retail customer. In seeking to remedy this omission, we must first make certain assumptions.

Guiding assumptions

To compare loans and deposits, we chose the spread that banks earn on these products in relation to a maturity-matched market interest rate. In order to avoid the distorting effect of various stages in the interest cycle, we used matched spreads averaged over time. We also started from present demand structure in individual countries so as to allow for differences in the use of the banking system by retail customers.

The findings

If we operate under these assumptions, the following picture emerges. UK and German banks are the least expensive, offering their services at an overall interest spread/fee revenue of close to 2 percent of their total customer volume. Banks in Italy, France, and the United States demand prices between 2.4 and 2.7 percent. Spanish banks charge their retail customers the highest prices, at over 3 percent....