Fixed Costs in the U.S. Banking System

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RWP 26-12, September 2026

Fixed costs account for an increasing share of operating expenses in the U.S. banking system. From 1995 to 2026, estimated fixed costs rose from 37 percent to 62 percent as a share of total noninterest expense. Over the same period, estimated marginal and average operating costs declined, loan spreads and net interest margins fell, and estimated loan markups increased by 21 percentage points. These trends are pervasive across banks but are most pronounced among large banks. We develop a model of bank industry dynamics with endogenous fixed costs to rationalize these long-run trends and examine pro-competitive effects. While competition increases credit supply, it decreases lending efficiency and increases bank risk-taking.

JEL classifications: G21, L11, L13, D24