Bank profitability;

              BANK PROFITABILITY by William W. Gerecke
Partner, Los Angeles Office
Presented before the 48th National Convention of Bank Administration Institute-September 1972
A perusal of business literature, particularly that of your industry, over the past few years suggests that banking can expect to undergo significant changes in the seventies. To some degree, these decennial predictions traditionally anticipate more radical or daring change than usually occurs, for it is our nature as human beings to accept changes gradually. With almost 14,000 commercial banks in the United States, it is easy to understand why changes in banking practices tend to be more evolutionary than revolution­ary.
Nonetheless, a greater share of the predictions may be realized in this decade than in those past. The formation of bank holding companies may perhaps be the most significant factor in stimulating changes by broadening the range of services provided by banks. Richard Cooley of Wells Fargo has described the holding company as a "one-stop financial center" and the decade as one in which the emphasis will be on new services and marketing. Stated another way, it will be a decade of developing new approaches to improving bank profitability.
The emphasis on change and innovation may be just in time, for the Hunt Commission Report, if implemented, would introduce a new dimension of competition to your industry. Thus, it is critical for you to understand what you are and what you can do best, and in this sense, what you can do most profitably. It is well to remember that you are profit-making institutions, and therein lies the principal theme of my remarks—the role of cost accounting in determining profitability and in identifying courses of action for achieving profitability. It is my belief that customers like to deal with successful banks, not marginal ones, for they respect organizations that are skillful enough to make money as a result of the quality of the services they provide. In unusual years, such as 1970, you may make money in spite of yourself, but over the long pull the best performers will be those who understand the source of their profits.
Historically, your industry has been concerned with the time value of money and has relied on this principle as the primary source of operating