Many years ago I had a teacher who constantly repeated the aphorism that nothing fails like success. Being a little slow, I never caught on to what he really meant until 1969, some 25 years later. It seems to me that he was telling us the story of the banking business in 1969.

We bankers were all successful last year. Our success was so great that we failed. We were successful in managing our liabilities under the greatest monetary pressure that the Federal Reserve System has ever exerted. In restricting the supply of money the Federal Reserve succeeded in driving up interest rates across the board, including the prime rate. This successful operation brought the politicians' wrath down upon the banks, and no amount of explaining that we were the cutting edge of government policy saved us.

In spite of a discriminatory Regulation Q we were successful in hanging on to most of our customers by finding other pools of liquidity to tap. The success of this venture brought us another public relations failure by blackening our eyes with the accusation that we were running around the end of the law. Since we were blocked by restrictive regulatory policy in responding to the legitimate financial needs of our customers, we were successful in forming a one-bank holding company to give us the flexibility we needed to respond to our customers' requirements. This success produced a political failure and engraved the word "loophole" in the headlines of the country's press.

There are those who say that if we had done nothing we wouldn't be in this situation today, but history cannot be written in the subjunctive mood. It is also true that if no one invented the wheel there would be no highway deaths, but, on the other hand, nobody would have gotten anywhere. The changes in the banking business, in the environment, in the political structure were too dramatic, too swift and too far-reaching for us to handle. Recently that great historian Arnold Toynbee wrote an article about the Seventies in which he said:

To digest this amount of change in 10 years will be the major difficulty for all of us in 1970-1979. It seems unlikely that we shall succeed in coping with this difficulty satisfactorily. The speed of technological change has now raised a question for the psychologists to answer. Is there a limit to the amount of change in the environment that a human being can digest within a lifetime? Previous generations have never been called upon to digest anything like so much.

When you are being shot at, it is a natural tendency to believe that you are the only target. Our industry is not alone in feeling unloved. The facts are that the citizens of our country are frustrated and edgy and ready to strike at any target.

We are engaged in a war we don't seem to be able either to win or to liquidate.

We are in an inflationary price rise that doesn't appear to respond to monetary measures.

We are paying more money for deteriorating transportation service.

We are in the midst of an urban crisis that gets worse instead of better.

The media reflect this unease. The papers are full of the fact that the automobile industry is polluting the world. The oil industry is killing the birds on the California coast and ducking behind depletion allowances. Medical care is said to be deteriorating in quality and accelerating in cost. Foundations have been clobbered by the new tax bill. And on the political front the grand juries in Newark are the most overworked people in America. The academic community has dozens of open college presidencies with no takers. This doesn't make our task easier, but should give us some perspective and perhaps a clue to the management of change.

Here at Citibank the amount of change that we were asked to digest last year was staggering, and I suspect that it was the same in your organization.

Many of you may recall that we reported to you last year on our new market-oriented reorganization. Then we spoke hopefully of what we might achieve. This year I can report to you that the patient did in fact live. It was an exciting and invigorating experience, for we not only recast the organization charts, but made significant changes in our management processes, leading to further decentralization and delegation of responsibility and authority within the organization. A great many of our officers were put opposite new markets, assigned new responsibilities and given the authority to go with them. By the accident of history, the increased lending authority coincided with the day we ran out of money, and we got some backfire because we hadn't really given the officers what they needed. Time and the Federal Reserve Board will take care of this.

All in all, I think it works and puts in place an organization which can produce improved earnings per share in the future. Like any highly motivated market-oriented profit center business, we are plagued by market jurisdictional problems between banking groups, with perhaps an overemphasis on transfer pricing.

Moreover, we ran head on into all the pluses and minuses of profit center operations. Profit centers carry the message of earnings per share with great clarity to the account officers. But we learned painfully that like any wonder drug, the profit center concept has undesirable side effects. Account managers can grow so profit center minded that they look at their own profits to the detriment of those of the institution or even to the detriment of their own customers. This does not invalidate the profit center concept; it only means that it has to be used, like anything else, with a strong mixture of common sense and some caution.

Nevertheless, there are loose ends. We did make mistakes and the state of the environment I described earlier didn't help much. The transportation of our city is in disarray and by the time all of us--customers and Citibankers--get to work, which is always late, it is hard to maintain good humor. This simply aggravates the temper of our customers over our operating errors.

We are attempting to reorganize our Operating Group in order to get our arms around that problem. There is no question but that we had a lot of piston pilots flying jet equipment, and that we wasted a lot of money and time following false trails. We think we are on the right road now, but no one can be certain until the results are in, and that will be at least a year from now.

One mistake that we made more than once was in faithfully duplicating manual and machine accounting systems by sophisticated computer programs. We produced the same hard copy faster, but at an enormously increased cost. We didn't think enough about what we were trying to achieve.

So much for the past. Our own priorities for management attention in 1970 are probably very much like your own. Our three highest priorities are (1) asset and liability management, (2) manpower development, and (3) our public image and the related holding company issue.

There is a good deal of discussion about shifting attention from asset management to liability management. In our view it is not a case of replacing one with the other, but rather of considering them together. This involves analysis and innovation, and also good public and government relations.

Tight money has accelerated the growth of commercial paper as a source of short-term working capital for American industry. This may or may not be a permanent phenomenon, but it must be reckoned with. Inflation has also added something new to competitive term lending which we will no doubt have to contend with in a serious way. Long-term lenders are moving back into the medium-term maturity range and demanding and getting a piece of the action. The result is more competition in all types of lending activities, and along with it, what are bound to be some greater elements of risk in our loan portfolios.

The risk problem will be compounded in the economy of tomorrow where greater leverage is likely to continue to be the name of the game for many of our borrowers. Bank portfolio management practices will have to respond to these as well as to many other factors. It is difficult to see any other course than relatively smaller investment portfolios compensated by a much higher degree of liquidity in those portfolios.

A projection of the growth and the changing composition of our assets, however, is just a starting point. We will all be sorely tested in our ability to cope with the liability management problem. A recent Reserve City Bankers study concluded that borrowings and other nondeposit liabilities of commercial banks in 1980 would be about three times their 1968 level. If the loan growth we have forecast in our five-year plan materializes, we will need to more than double our dependence on money market funds, Eurodollars, negotiable CDs and other nondeposit liabilities by 1974.

In a world short of capital, the critical question over the next five years is whether monetary policy and regulation will permit us to look imaginatively for funds to respond to this demand. This is where the public relations problem and liability management issues merge.

We are tackling the funds problem in our own shop a number of ways. As a strategy for continued growth in our demand deposit base, we continue to place primary importance on the development of new and improved consumer services. Increasing our share of the deposits from the household sector is a major preoccupation of our Personal Banking Group. Both of these strategies have been significantly reinforced as a by-product of the reorganization. We are also carefully exploring all the money market options.

We continue to believe that a major overhaul of the regulations dealing with "eligible paper," particularly in the case of bankers' acceptances, is very much in order. The present criteria for eligibility are archaic and, in our judgment, detrimental to both medium-sized borrowers and the banks. There seems to be considerable room for innovation in creating new liability instruments of a medium-term nature which could have a constructive impact on the money markets, not to mention a favorable liquidity by-product. Let's face it, we have come through this period by relying heavily on borrowing short and lending long. It is absolutely essential to correct this imbalance.

The dramatic changes in the money markets have not taken our sights off the traditional debt and equity routes to raising capital and, at an appropriate point in yield curves, medium- to long-term straight debt may be a possible answer. Again, this raises a regulatory problem badly in need of attention, specifically, our debt limits.

The rules governing the legal debt limit were drawn up in another age, largely before the advent of the term loan and certainly long before the negotiable CD and the Eurodollar. The concept of matching maturities on a balance sheet is still as valid today as it was when we learned our three C's of credit, and it is difficult to conceive that existing debt limitations are serving the best interests of either depositors or stockholders. Equity capital continues to be an option provided we can maintain an earnings growth which will keep our multiples high enough to keep the cost down.

Our second and equally important concern is not a new subject for this forum. It is the whole spectrum of manpower planning, management development and training. The critical manpower shortage in New York has required us to put in place training programs to cope with the problem. On the official level, the problem is just as acute. Last year we interviewed on 70 campuses around the world to hire 187 men and women. Proportionately, these could be the same statistics for many of you in the audience. We have done a reasonable job, but not nearly good enough to prepare for the growth we see over the next decade.

The reorganization, and resulting decentralization of responsibility and authority, has, in our judgment, been a critical factor in our ability to attract and retain the bright young business school graduates. These men and women are well equipped and are expecting to assume early decision-making responsibility. If they don't find it at our bank or yours, they will go to our competitors or customers and out trade us at the negotiating table. In addition to responsibility and authority, they are clearly looking for performance-related compensation programs. While we are doing some experimenting in various areas of the Bank, we are convinced that we must refine our performance measurement tools if across-the-board incentive compensation is going to work effectively.

We also set up a "go go" special situations mutual fund for our employees this year. This fund, when approved by the SEC, will permit them to invest in higher-risk situations than is the case with our Profit-Sharing Plan, and we hope this will be of some help in continuing to attract top talent.

The public image issue, both related and unrelated to the holding company, is our third major preoccupation. We all received a rude awakening when the House passed the discriminatory one-bank holding company bill. The first step in recovering from such a failure is to know where we took the wrong turn. We are satisfied that we have listened to our own speeches at earlier correspondent bank forums and, in recent years, have identified much more effectively with our local government representatives. We underestimated, however, the political unease in the country.

The fact is that all of us face two kinds of communications problems. One is the industry problem of telling the man in the street, the voter and the customer just what banking is all about. Being an industry problem, its solution should be sought by the American Bankers Association which represents all of us. (And I understand that such a program is well under way in cooperation with the Foundation for Commercial Banks.) The second communications problem is the one each of us faces separately--understanding and educating our own individual publics and communities.

Finally, we cannot separate the probabilities of success or failure of any one of these issues from our success or failure in making a substantial and constructive contribution to the solution of our major national problems, to the social environment, and to the local communities in which we operate. We are recognized by all of our publics as having the financial know-how and resources to make a major contribution, and it is clear these publics expect us to be more visible on these critical issues than we have been.

At Citibank, we expect to take another look at our objectives and priorities. Are we doing enough with our financial management expertise? Are we doing enough on the asset side of our balance sheet? If we elect to do more, as I am sure we must, it could mean a trade off in terms of current profits and in terms of taking higher risks in our loan and investment portfolios. However, at least in our case, where our headquarters is located in the center of a major urban crisis, where our employees, of necessity, must be drawn from the ghettos and other areas facing critical social and housing problems, we are clearly talking about trading off short-term profits or risks against long-term survival as a growth company in the financial services field.

For all of these reasons we welcome the President's initiative expressed in his economic report for a Presidential Study Commission on the nation's financial institutions. It has been a good many years since this nation looked at its financial structure, and many of the laws and regulations which surround us are, in the words of the CEA, "devised for an earlier economic environment" and "can stifle innovation and new developments in today's market." The composition of the Commission is important, and our willingness as bankers to supply the testimony and the background papers, which will be called for, can be crucial to constructively shaping the end result of this effort.

This does not absolve us from a thorough reorientation of our public attitudes. One definition says that public relations is doing right and getting credit for it. I suggest that pretty well sums up what our posture will have to be in 1970; it is also a pretty good definition of the management of change.