CCG Catalyst Consulting Group Ideas & Insight Series

October 2011

By Lee A. Kidder

Banks have a big problem. They need to restart their revenue engines, which have been stalled for several years. The trouble is, the fuel they have been using for decades is not "green." It is inefficient, wasteful, injurious to customers' relationship health, and in increasingly short supply as its advocates defect from the dark side. Promising and plentiful alternative fuel sources exist, but there is no consensus on which one(s) will become the accepted norm, and their development and implementation will surely be arduous and expensive. Banks therefore sit and fiddle, as they customarily do, waiting for someone else to tell them the answer.

Strained metaphors aside, the problem is very real. As banks around the country report their quarterly earnings, many of which are considerably improved over the prior year and quarter, analysts and regulators are quick (and rightly so) to point out that the improvements are due to non-operating factors, primarily reduced provisions for loan losses. Top-line revenue in the aggregate has not increased at banks for at least three years, as the figure below illustrates.