Last year, at a planning meeting of the American Bankers Association, a banker who runs one of the largest retail banks in the country said to me, "Why are we having this meeting? Banks will be irrelevant in the future."

When I suggested that there must be some reason for his bank, as well as others, to pay very hefty prices to acquire other banks, he responded, "Well, I think in the interim period, there is some money to be made in the industry."

If he had said that banking as we knew it 25 years ago would be irrelevant, I would have agreed. But I don't think that's what he meant.

Special Assets

In predicting the future, what many industry observers - including bankers themselves - often overlook are the special assets of the banking industry.

Yes, the industry is facing increased competition from other financial service firms. Yes, consumer demand for traditional banking services, such as deposits and loans is declining, with the emergence of many alternatives.

Yet three out of four Americans continue to maintain a relationship with their local banks. And they look to those banks as the primary providers of financial services.

There are good reasons why Americans continue to rely primarily on banks, and why banks have successfully expanded the range of product and service offerings to meet the needs of today's retail customer.

Part of the Community

Banks are now in insurance and mutual funds. They sell stocks and bonds and own mortgage companies. They offer computer services and credit cards.

Banks are able to effectively compete in this new, dynamic financial services environment because, more than any other financial institution, they are part of the communities where people work and live, because their local presence and involvement in the community has earned the trust and confidence of their customers.

These personal relationships and involvement in the communities constitute the essence of our franchise.

The importance of community involvement, of retaining a local management and decision-making orientation even within the context of a larger centralized operation, is demonstrated in the results of a study recently commissioned by First of America Bank Corp.

A Force for Change

The Wirthlin Group surveyed leaders in government, business, nonprofit organizations, and the media on which institutions are most important to the health of their communities. After local government, banks topped the list.

Almost 80% of community leaders indicated that banks have been extremely or moderately influential in effecting positive change in their local communities. This compares with 33% for insurance companies, 28% for credit unions, and just 17% for brokerage firms. And 93% of this group believe that locally focused banks are important for civic health.

Is such an institution, believed to be so vital to the health of communities, about to disappear? No. But it will most likely change - as it has already.

The more astute bankers - and our competitors - recognize the value of their franchise. One prime example is the joint venture of NationsBank and Dean Witter, Discover & Co. to form an independent brokerage operation.

The program has exceeded expectations and, interestingly, nonbank customers are making about half of the purchases through Nations Securities.

Why did Dean Witter decide to pair up with a bank? Perhaps because banks' share of mutual fund sales grew from 6% in 1989 to 11% in 1993 and may reach 25% by 1995. Or perhaps Dean Witter saw an opportunity in the fact that more than 80% of bank customers use banks exclusively for their financial service needs.

As one bank consultant noted recently, "Banks have a singular asset - their relationships with customers and their ability to sell them multiple products. Other providers are usually selling just one thing."

Anticipating Needs

To successfully compete in the new financial services arena, retail banks must anticipate and respond to the financial needs of today's consumers. But the most successful retail banks will be those that fully capitalize on their unique positions in their communities.

In banking's rapid consolidation, in the "bigger is better" phenomenon, we in the industry too often lose sight of our greatest strength. As we battle our competitors - other banks as well as nonbanks - and as we deal with regulators and legislators, we sometimes forget why our customers turn to us and stay with us.

We minimize or ignore our most important asset, the foundation of our franchise - customer trust and loyalty, the result of decades as engines in the growth and development of the local communities in which we do business.

If we are to succeed, we must discard the limited notion of banks as impersonal providers of financial services. Banks will endure if we fulfill our leadership role in the nation's communities. That is, indeed, our strongest asset.

Mr. Smith is chairman and chief executive of First of America Bank Corp., Kalamazoo, Mich., and president of the American Bankers Association.

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