The savings and loan crisis was brought to the attention of the American public in a dramatic manner in 1989. While the headlines emphasized the problems in the thrift industry of the financial services sector of the American economy, more thoughtful analyses began educating Americans to the fact that significant problems also existed in the commercial banking industry. Some analysts even contended that the potential for problems in the commercial banking industry held the potential to cause the scandal in the thrift industry to appear minor by comparison.
The issues confronting the commercial banking industry in the early-1990s were many and varied. One of issues that is critical to the financial viability of commercial banks is product costing. This issue was investigated in this study.
Whatever the potential was for a savings and loan type debacle in the commercial banking industry, a certainty was that the changing national and international financial services environments demanded that commercial banks become more efficient in their operations if they hoped to survive the remainder of the 1990s.1 While it was essential for commercial banks to pursue operational efficiency improvements in a number of different areas, an area of particular significance in this context was the
1J. C. Svare, "Focus on Fees, Cost Controls Should Keep Bank Profits Steady," Bank Management 68 (September 1992): 44, 46, 48.
costing of banking products--the financial services provided by commercial banking institutions. From the perspective of the commercial banks, fees charged for banking products represented the key to profitability.2 Conversely, however, a study found that fees for banking products were the principal reason why customers change banks.3
Fees for commercial banking products are set through the process of product costing. The problem area of banking product costing is exacerbated by the changing character and defini...