To the Editor:

The three-part series on the topic of what needs to be done with large banks ["U.K. Breakups Could Point to Big-Bank Dismantling in the U.S.," "What's Lost, Gained If Giants Get Downsized," "Leadership May Decide Question of 'Too Big'," Nov. 4-6] makes a number of important points.

Over the past six months, I have had the opportunity to discuss and debate this topic with many industry leaders. That "too big to fail" is really a euphemism for "too big to manage" is spot on.

The series rightly credits a number of large banks that have weathered the storm. Although great leadership is as much art as science, there are specific actions that all banks can take today to ensure they are prepared for the future.

Identify the source of sustainable profitability for each line of business. Much time is spent forecasting revenues and forecasting the impact markets and economies may have on revenues. We are not as deliberate in our assessment and scrutiny of costs. Financial leaders must be as sensitive to what drives costs as what drives revenue.

Don't get intoxicated by economies of scale. Many of us have improved margins by creating large-scale economies. Over time we have squeezed out every last bit of efficiency to support growth. But there inevitably comes a point of diminishing returns, and we must be prepared with an alternative when that time arrives.

Understand the interdependencies across multiple lines of business. We currently support many businesses with shared services, processes and technology. Management should perform a diagnostic review that identifies and maps embedded dependencies across the organization. Many dependencies are created unintentionally in the fierce pursuit of scale economies. We need to fully understand the implications.

Analyze. Diagnostics reveal the complexity and dependency of diverse lines of business and the enterprise risk that results. Management will be able to see how shutting down one line of business (credit card, for example) negatively impacts another line of business (small-business lending). Unwinding this complexity requires more than artful leadership; it requires clear analysis and informed decision-making.

Plan for the future. Business will go on; growth targets will be met. But, how leadership teams go forward after this downturn will directly impact long-term organizational viability. Interdependency among lines of business is not inherently bad. But, as individual lines of business mature, managers have plans in place for the orderly unwinding of a given business without destroying others.

Break glass in case of emergency. Great organizations are the result of smart, innovative people building outstanding capabilities and their success has been measured by margin growth, market share and other metrics. Too often, maintaining market leadership unintentionally drives bad decisions. Management must also reward staff for raising their hands and hitting the emergency brake if they sense something is wrong and build a culture that encourages good decision-making.

Our industry should take the initiative to make these issues our own, or accept the outcome that Congress or regulators will hand us.

We are trying to swallow the concept of a pay czar. Are we ready for a productivity and preparedness czar?

Louis F. Rosenthal
Chicago

Editor's note: The author has held executive positions with ABN Amro Bank and LaSalle Bank, where he was the chief administrative officer. He joined Bank of America in 2007 when it acquired LaSalle Bank, and left in February of 2009.

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