Bank profits shifted from loan interest toward securities-packaging fees before the crisis

Evidence

This trend dovetailed with another trend in the big banks, a transition from deriving much of their profit from loans to deriving it from fees for packaging mortgages (and other loans, such as credit card, auto loan, and student debt) into asset backed securities (ABS), selling ABSs and MBSs, creating dummy Structured Investment Vehicles (SIVs) to further reprocess MBSs into CDOs, and so forth. One estimate suggests that income from fee-related activities at commercial banks increased from 24 percent of total revenue in 1980 to 31 percent in 1990 to 48 percent in 2003. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 888

Categorization

• SEED: The 24%→48% fee-income shift is a clean data point for an article on how securitization restructured bank incentives decades before 2008.
• XREF: connects to: The euro created bank incentives that produced a private crisis — Mark Blyth, Austerity: The History of a Dangerous…, 153; Securitization erased the functional boundary between commercial and investment banking — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 47; Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis — Albert Bandura, Moral Disengagement: How People Do Harm…, 1492 (+2 more)

Broader Connections

• Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis #expands (0.80) — Albert Bandura, Moral Disengagement, 1492
• Securitization erased the functional boundary between commercial and investment banking #expands (0.78) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 47
• Bundled bad loans hid their risks and true value from investors #corroborates (0.75)