But even if such a worst-case scenario doesn't materialize, the industry still needs to focus on its deposit problem. During the '90s, banks relied heavily on noninterest income to boost the bottom line, much of that coming from fees tacked on to retail accounts. Meanwhile, the slowing economy has sparked a surge in problem loans, which forces banks to cut back on lending and drain earnings to bolster loan-loss reserves. In this harsher environment, deposits take on a renewed importance. Already, leaders in deposit growth are getting a lot more press and analytical attention.
Economic growth is obviously outside an institution's control.
More subjectively, there's a strategic mindset in these institutions that elevates deposit-gathering to a priority, as opposed to an afterthought. That attitude must change. Hill, for example, gets involved in every detail of Commerce Bancorp's retail operation, from branch design and furnishings to the installation of coin-counting machines. Hill's strategy is expensive and critically depends on additional factors, such as high equity leverage and low credit quality problems, for strong profitability. But even larger institutions can take the necessary care.