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Banks are boring. Hip hip hooray!

July 16, 2012: 12:26 PM ET

Banks need to focus more on the boring, but less risky, business of taking deposits and lending to consumers and businesses.

It's a good thing that Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) still do some good, old-fashioned retail banking. The Wall Street business stinks.

Citi reported a better-than-expected second quarter profit Monday -- despite year-over-year declines in investment banking as well as equity and fixed income trading. Shares were up on the news, following a nearly 5.5% pop for Citi on Friday on the back of JPMorgan's kitchen sink earnings report and decent results from Wells Fargo.

As easy as it is to pick on the big banks for using accounting gimmicks to make results look better, I have to admit that there is some undeniably heartening news in the latest round of bank earnings. Lending is up. And banks are taking in more deposits. Imagine that.

Citi said Monday that consumer lending volume rose 2% in the quarter. The bank specifically cited strong demand in North America and Latin America. Now sure, an increase of 2% is not a number to jump up and down and do cartwheels about. In fact, analysts at financial services research firm KBW pointed out in a report Monday that banks are merely expanding their lending in line with gross domestic product growth.

Related: The myth of the "zombie economy"

But again. It is growth. And as we all know, mortgage rates at record lows mean squat unless banks are actually willing to lend and consumers are willing to borrow. Since the Great Recession ended a few years ago, many consumers have complained about how hard it is to get a loan even with good credit. So more lending, assuming the banks have not loosened their standards to the lax 2006-2007 levels (No down payment? No collateral? No problem!), is an encouraging sign.

The increased lending activity goes beyond consumers too. Citi also said that corporate loan volume surged 22% in the second quarter from a year ago. If that trend continues, companies might finally be in a position to hire more and give this sluggish economy the kick in the pants it sorely needs. Businesses, particularly smaller ones, need loans to grow. The fact that Citi is lending more to businesses is great news.

Citi is not alone. JPMorgan Chase reported Friday that business banking loan originations were up 14% in the second quarter. Wells Fargo said that new loan commitments to small businesses rose about 32% in the first half of the year compared to the first six months of 2011. Hopefully, Bank of America (BAC) will also report strong growth in business loans when it releases its second-quarter results Wednesday.

Smaller regional banks may also post healthy levels of commercial and industrial loan growth. Anthony Polini, a bank analyst with Raymond James, wrote in a bank earnings preview report Monday that he's expecting solid growth from US Bancorp (USB), SunTrust (STI), Fifth Third Bancorp (FITB) and Huntington Bancshares (HBAN).

Another piece of good news? Citi, Wells and Chase all posted healthy gains in customer deposits. So there is not even a hint of Greek-like bank runs taking place in the United States. Consumers still clearly feel safe having cash in the big banks.

I realize the negative part of that is this may be a sign of investor skittishness. People appear to be willing to park more money in low-yielding checking and savings accounts than in stocks and bonds. But it's hard to quibble with the fact that consumers are saving ... and they are still doing it with the nation's largest banks despite concerns about their health and all the populist uproar over how evil big, bad Wall Street banks are.

Now let's not kid ourselves here. The mega banks still face a litany of problems. The hedging loss at JPMorgan Chase shows just how risky trading can be.

Related: How Jamie Dimon hid the $6 billion loss

There is likely to be more headline (and possibly litigation) risk as the "Lie"-bor scandal spreads beyond Barclays (BCS) and other big European banks. Finally, the increased regulatory scrutiny on the big banks could hurt profits for years to come.

But that's not necessarily a bad thing.

As I've mentioned in this column for some time, the worst thing about the big banks as investments is that they are incredibly difficult to understand and analyze. If banks continue to focus more on the admittedly boring business of taking in deposits and generating loans, the chances of another Lehman-like event should diminish greatly.

Of course, that means big banks are likely to continue being treated more like staid value stocks instead of momentum tech stocks.

Bank stocks have lagged the broader market since stocks bottomed in March 2009. That trend may continue.

And while that may be bad news for investors who've grown accustomed to outsized returns from banks that lapped up leverage like a camel drinking water in a desert, the economy (and average consumer) will benefit in the long run from a banking sector that is more interested in avoiding risk than generating obscene profits.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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