Don't expect AI to kill off high bank fees—there's a math limit to how low those costs can actually go.
March 26, 2026
Original Paper
<div> The Irreducible Fee: </div> <div> Capital-at-Risk and the Floor on Financial Intermediation Costs </div>
SSRN · 6346878
The Takeaway
There is a popular belief that AI will automate away the high costs of banking and brokerage. This paper argues that because financial intermediation requires humans or institutions to put actual capital at risk under uncertainty, there is an 'irreducible fee' that persists even when transaction and information costs drop to zero.
From the abstract
<div> In markets where intermediation requires deploying capital at risk under genuine uncertainty, the equilibrium price of intermediation has a strictly positive floor. Three channels contribute to this floor: (i) the participation constraint on risk-bearing capital, which requires compensation for irreducible risk (Sharpe, 1964); (ii) market clearing under finite capital supply, which prices the opportunity cost of balance sheet commitment; and (iii) the Grossman-Stiglitz (1980) information c