Academic journal article ABA Banking Journal

The Chief Business of Banking Is Business

Academic journal article ABA Banking Journal

The Chief Business of Banking Is Business

Article excerpt

THAT ASSESSMENT (BORROWED from Calvin Coolidge, with a little modification) seems increasingly apt. How do we know this?

One clue comes from the high turnover in the rankings of top-performing community banks in this issue (p.30). As the cover story notes, the turnover is a reflection of many one-time events--sales of a division, a branch, or of securities. Some of these events, of course, are simply opportunistic. But others may indicate that banks are making adjustments to their business models to meet competitive pressures.

Such pressures surface in a variety of ways. One example is the cooling of the residential mortgage market, which quite a few banks rode to profit in recent years. A longer-running reason faced by generalist banks is the gradual loss of their credit-card and car-loan business to large--often nonbank--competitors. As a result, more banks are shifting to a heavier focus on commercial lending and commercial real estate.

A second clue is anecdotal evidence. In conversations with bankers, we get the sense that retail--leaving aside deposits--is less desirable than it once was. Not because of an inherent dislike of the business, but simply because it has become a mass-market game in which reach, price, and technological leadership are requisites for success. Clearly Bank of America, Wachovia, New Jersey's Commerce Bank and others have those requisites and thrive in the retail market. Other banks less so.

For many community banks, retail has long been something of an accommodation--of less importance than the small and midsize business market. In that sense the pendulum seems to be swinging back to where it once was. …

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