before attempted. Bankers know generally the direction in which they must head, but they can't be certain of their destination or of the obstacles they will encounter along the way. Today's bank executives are confronted with challenges unlike any their predecessors faced. The pace of change continues to accelerate, leaving little time for reflection. This is troublesome at a time when the conventional wisdom about management and organizational structure requires thoughtful examination. For much of our history, particularly the past 60 years, U.S. banks were highly regulated. Their prices were established by law, as were the products and services they could offer and the locations at which they could operate. Technological advances rendered the restraints obsolete, so the government began dismantling them 15 years ago. The price controls came off first, then the geographic restraints, and now the restrictions on products and services. Prior to deregulation, banks didn't need and therefore didn't create sophisticated skills in marketing, sales, and product development. They had little need to develop state-of-the-art systems for managing and pricing risk. Training programs were rudimentary. The change to a relatively free-market banking system was so abrupt very few banks were truly prepared to play under the new rules. Many failed; even more sold out or were taken over, a process that continues at breakneck speed. Today, average performance - and sometimes even good performance - is no guarantee against a takeover. Colossal new organizations have been created virtually overnight. They rival the nation's leading industrial companies in terms of size, scope, and complexity. To put some perspective on things, last year U.S. auto companies earned $14 billion in a good economy. Should Bank of America and NationsBank merge, as has been rumored, the company would earn some $4 billion, based on 1994's results. Some of the new banking titans have grown tenfold or more during the past decade. Much of the growth has been by acquisition of failed or failing companies, which almost by definition had weak management and poor operating systems. The quality, and not coincidentally the compensation, of bank management has increased tremendously during the past 15 years, so most banks should find their way into the future. But there will surely be accidents and casualties along the way. Too many decisions are being made too fast for us to believe otherwise. There are some trends and fads that could spell trouble. Cost cutting has become an obsession in some banks, to the point where it could be doing more harm than good, particularly in terms of employee morale and customer relationships. The pricing of acquisitions has been excessive in a number of instances, increasing the pressure for cost cutting. One can't help but wonder what future problems are being created by banks reaching out on the risk curve to help cover the cost of acquisitions. Even more worrisome is a nagging concern that we haven't figured out how to organize and manage the new banking behemoths. The prevailing view is that as many functions as possible should be consolidated to reduce expenses, and decision-making should be centralized to maintain control. However, I'm convinced the most successful banks will be those that create business units of manageable size and permit them to operate with a high degree of autonomy. This structure might not be the cheapest to operate, but it will be the most responsive to customers and will generate the most revenue. Banks, ultimately, will succeed not because they offer the best prices but because they add the most value. A decentralized structure will also serve to reduce risk. Mistakes are inevitable. The trick is to make sure the mistakes are never big enough to jeopardize the company. A company with a significant number of autonomous business units is less likely to make catastrophic miscues than a company with a highly centralized command structure. The organizational and management questions are at the top of the list of critical issues facing bank management today. Those who make the right choices will likely be around a decade from now. Those who don't will not. Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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