Regulators and examiners continue to warn the banking industry about taking undue risk, but many community bankers are not heeding these warnings.

"We are not affected by Asian meltdown, by devaluation of the ruble, by failure of counterparties on swaps to meet their obligations," bankers say. "We take deposits and make loans in our areas of service."

Community banking can be badly hurt by actions that at first appear to involve only larger competitors. For example, what would downsizing of large exporters do to the sales of retailers, auto dealers, and others who serve the employees of these larger companies?

Or with mortgages at or even above full value of some homes, would a falling real estate market bring disaster to those lending as much as 120% of value on first mortgages? And what about those who have made home equity mortgages on top of this without thought to the legal, economic, and public relations problems of getting hold of the collateral in times of trouble?

Back in the mid-1980s the savings and loan industry looked as if blue skies from then on would be permanent. Yet some were warning that even community thrifts that handled plain-vanilla business should take care.

One of these was Anthony M. Frank, then a top savings and loan executive and later U.S. Postmaster General.

At the 1985 U.S. Savings and Loan League convention in Dallas, Mr. Frank passed out a pamphlet to the membership titled "15 Lessons Relearned."

Mr. Frank ad-vised fellow managers that even with the industry expected to earn more in the second half of that year than their entire net worth at the beginning of the year, thrifts should not forget the lessons learned in the first half of the decade.

Among those lessons that seem most relevant today:

Appraisers with integrity and independence are indispensable for the quality of our asset portfolios.

Using wholesale savings funds for the bulk of business is unsound. Beware the customers-those that work for money funds-who wear headsets.

Retail small accounts are unglamorous, safe, and satisfying.

An extra quarter-point in yield or fees cannot make a bad loan good.

We need to support our regulators and trade associations when they take positions that are unpopular but necessary.

Nothing gives a manager more courage in dealing with new problem loans than to have existing, nonallocated loss reserves.

Contacts and knowledge of events and people in our state capitals and Washington are an integral part of our responsibilities. Though Mr. Frank was addressing thrift executives, his words apply equally forcefully to commercial bankers.

Give your customers the service they want and recognize that to stretch for yield or fees at the price of assuming extra risk is dangerous policy. And stick with customers who have loyalty to you as long as you have loyalty to them, rather than wooing deposits with an extra 10 basis points. These remain the keys today, and they remain as relevant as Mr. Frank's pithy "Beware the customers who wear headsets."

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