It has become all too easy to write columns that list the challenges that banks face, including regulations, IT costs, shifting demographics, revitalized competitors, shadow banks, big branch companies offering lending and payments … the list goes on. It is important to understand the challenges but even more important to respond to them proactively.

Are the challenges so great that banks should simply pack it in and their Boards look for a quick exit strategy? Frankly, some should if an assessment shows they are heading down a perilous path. My recipe for eroding earnings includes:

* Strong reliance on a branch system. Yes, physical offices continue to be valuable to many customers, but their size and number need to shrink significantly. It may take years for rates to return to a level that increases branch profit. At the same time transactions are leaking out of branches at the rate of about 10% per year, baby boomers are being replaced by tech-addicted customers, and companies like Ally Bank have launched national ad campaigns touting the ease of non-branch banking. The trend is clear.

* No digital strategy. Having a digital strategy goes well beyond offering mobile banking or RDC. It requires a changed mindset and a willingness to, as a recent McKinsey article states, “reinvent the entire business process.” That is a big deal with a potentially huge payoff, but most banks view digital as just another channel…wrong.

* Lack of segmentation. Being a general C&I or any other type of general lender is a ticket to reduced margins and never-ending RFP processes, not a way to build sustainable franchise value. Virtually every bank or bank line of business I know that has strong returns has selected a focus, whether industry, product, relationship approach, or other scheme. Trying to be all things to all people leads to being nothing to anyone.

* Credit and Line antipathy. If trust and respect do not exist between these groups, internal processes slow down and become inefficient. In recent weeks I have worked with three banks. At two of them a level of distrust exists between credit and the line. In my view the credit areas view the bankers (perhaps correctly) as failing to be sufficiently rigorous in their analysis while the bankers view credit personnel as slow to respond and/or unrealistic in their requirements. At the third bank the line and credit share a similar focus both on the customer and credit requirements, and the respect they have for each other is clearly discernable.

The bigger problem than the friction between the two groups may be bank management’s unwillingness or inability to address it directly and, more important, take action:

• Why does credit not trust some of the line bankers? Is credit right? Should these bankers be receiving training? Should they be fired?
• Alternatively, are credit requirements unrealistic, given competition? Are credit personnel fighting the last war rather than responding to the current environment?
• What specific steps can management take ASAP to improve the cooperative spirit between these groups?

All basic and critical questions.

* Focus on history rather than the future. Today, having “a 100-years of history” with the traditions and legacies that history brings, has become more of a barnacle than a benefit for most banks. If you spend any time with a dot-com, you see an energy and willingness to confront tradition that most banks lack. Regulations may serve as an internal excuse for not moving quickly and making changes, but it is an excuse that, ultimately, the customer and other stakeholders will simply not care about.

* Unwillingness to change personnel. Banks continue to put up with too many underperforming employees. In some cases they embark on training programs in the absurd hope that classes will transform a frog into a prince. Replacing people is disruptive, but it can be disruptive in a good way. Colleagues know who the underperformers are and actually respond favorably when management makes a change for the better. Last week someone told me of a very personable employee who had been dismissed for cause. She went on to comment that, while they would remain friends, the person deserved to be dismissed. In fact that fired employee’s poor performance hurt other people’s performance as well, as the dismissed employee pulled down others rather than providing positive leverage. Management gets respect when they act.

* No sales culture. During the downturn, many banks turned inward, appropriately focusing on account maintenance rather than sales, particularly to new targets. While the emphasis has now shifted to sales, most banks operate with nothing that a non-bank would ever consider a sales culture. Consistency, rigor, follow-up, and yes, a sales funnel, all serve as critical elements of sales success.

Very few banks conduct the Monday morning, “Who are you calling on this week?” followed by the Friday afternoon, “Who did you call on, and how did it go?” meeting on Friday afternoon. All the training in the world pales in comparison to a boss asking direct questions of a sales employee. By the way, if most of a banker’s compensation is tied to a salary rather than performance, you do not have a sales culture.

Of course, every bank will need to improve in most, if not all, of the above areas. This journey has no end point, as success requirements and customer expectations change. However, the best banks I work with are both restless about the future, proud but cautiously so about what they have accomplished so far, and driven to challenge themselves and never be complaisant. That’s part of a recipe for success.