Never before has banking seen so much furious activity. Around the world, what were once regarded as stuffy, ultra-conservative institutions are merging and consolidating, entering new business lines, competing with investment banks, and trying to recast their images as modern, highly diversified financial institutions.

Yet never before has the future of banking looked more uncertain. Throughout the industrialized world, banks are scrambling for an identity and a strategy. And for good reason.For several hundred years, banking has been essentially a business of just two activities: taking in deposits and lending out money. But what were once virtual monopolies have come under steady assault from competitors. In 1981, Americans had half of their savings in the bank. By 1997, that percentage had dropped to less than a quarter. Meanwhile, the proportion of their savings they held in mutual funds tripled from 5 percent to 15 percent. The same trend is evident globally.

The news has not been any better for banks on lending. Companies are finding it less expensive to go directly to the capital markets, especially in the United States. In Europe and Japan, banks still dominate lending, but no one is confident that situation will last. After all, many companies today have better credit ratings than the banks they used to borrow from. According to the Economist, 10 years ago, 21 private banks around the world enjoyed Moody's top AAA rating. Today, only one does, Rabobank of the Netherlands.

In short, what were once the enviable strengths of commercial and retail banking offer little advantage today. Banks that have seen the writing on the wall have rushed into consolidation. Over the past 13 years, the number of banks in America has declined from over 14,000 to less than 9,000, even at a time when bank failures have been almost nonexistent.

No doubt, many of these mergers are driven by the need for greater efficiency. But rapid consolidation has also had its pitfalls for banks, not only in surmounting the cultural hurdles that come with cross-border takeovers, but in leading banks into the seemingly promising arena of investment banking.

Today, the combination of commercial and investment banking is accepted as a natural evolution. But should it be? Aside from the word ''banking,'' they have little in common, as many bankers are discovering to their (and to their stockholders') chagrin.

The differences should have been obvious. Investment banking requires a range of sophisticated products, and a troop of high-paid analysts, traders and salespeople to create and market them.

Clients are more difficult to attract to an investment bank, and recruiting them is full of up-front costs. And, of course, the cultural differences between the two institutions, particularly their attitudes toward risk, are stark. These differences often emerge only during the post-acquisition transition period. Again, all this seems obvious, but it is remarkable how many cautious bankers have thought they could suddenly change their spots.

But the more fundamental problem is that the large, established investment banks are so profitable and globally respected that mounting an effort against them makes for an expensive, if not futile, proposition. For the banking industry, the consequences are serious. Much of the productive brain power in banking has been directed to the least profitable end of the business. It has left commercial banks without the experienced management to execute at the retail level or the technology for that end of the business.

What is the banking industry to do? I suggest looking at the banks that have been quietly cultivating their customer relationships - still the core of the business. These are the institutions that have understood that not every bank can or ought to be a global, multi-service banking behemoth.

Lloyds, for example, has managed an average return on equity of 30 percent over the past five years with no sign of shifting to investment banking. It is too busy satisfying customers on the retail side. Standard Chartered, another British bank, has focused on its international clients, especially in Asia. Today this bank holds more than 70 percent of its assets outside Britain. In the United States, Founders Bank of Pennsylvania has built remarkable customer loyalty by focusing on one-to-one service. For these banks, the choice has been specialization, recognizing that no bank can do everything globally and expect to do it well.

Banks that wish to rediscover their true business will learn that the supposedly dull elements of banking - asset management, custodial services, trade finance, retail banking, and especially payment cards as they become the common currency of the Internet - are all growth areas. Meeting customer needs requires both innovation and prudence, qualities often missing in the pell-mell pursuit of more alluring investment banking opportunities.

To those who prefer the limelight of global finance, ''customer relations'' will always sound unglamorous. But for those banks with the self-discipline to resist the temptations of international investment banking, it is the most promising strategy, one that will reward both customers and shareholders.