Banking services fee accounted for nearly one-third (30.6 percent) of total banking revenues in 2010, according to a recent report from California-based Market Rates Insight (MRI).

This is a 24.3 percent increase from 2007, with the rise being attributed to declining interest income from loans, according to a statement. From year-end 2007 to year-end 2010, interest income, as percentage of total income, declined from 75.7 percent to 69.4 percent due to soft lending market and relatively low interest rates on loans. As a result, non-interest income, which encompasses mostly fees on services, has increased as percentage of total income from 24.3 percent to 30.6 percent.

"This is a classic catch 22 scenario for banks," said Dan Geller, executive vice president, MRI. "Soft lending reduces interest income, causing fee income to become a bigger part of total revenues. Increasing fees to generate revenues can drive some customers away, which reduces the number of potential customers for lending. Smaller customer base reduces interest income further, causing non-interest income to become an even bigger part of total revenues."