Battle brewing in New Jersey over allowing out-of-state banks to open new branches.

New Jersey banking officials want to be among the first to apply interstate branching provisions, but community bankers might oppose it if out-of-state banks can start new branches in the state.

"The community bankers are definitely against [de novo branching] and there'll probably be blood on the moon if that happens," said Anthony Abbate, president and chief executive of Interchange State Bank in Saddle Brook.

Under the new law, national bank holding companies in any state can acquire a bank in any other state beginning a year after the law's enactment.

Companies can also convert their subsidiaries in other states into branches beginning June 1, 1997, unless a state opts out.

But state lawmakers can choose to allow interstate branching before the 1997 trigger date.

They can also apply the same branching provisions to statechartered institutions, which are otherwise not covered by the federal law.

Finally, states can also allow out-of-state banks to start new branches, instead of making them follow the traditional avenue of buying an existing bank and branching from there. De novo branching is not permitted under the federal law.

Now New Jersey Banking Commissioner Elizabeth Randall is encouraging her state's lawmakers to opt for the interstate provisions.

If a move to allow de novo branching emerges, community bankers said their support for optingin will deteriorate.

Bankers don't mind the current state law allowing an out-of-state national bank to come into the state only by purchasing an existing bank and keeping its headquarters in the state, said C. Mark Campbell, president of the Community Bankers Association of New Jersey.

That ensures that existing state bank franchises are maintained and protects shareholders, he said.

"By allowing de novo branching in the state, I don't feel we're protecting our shareholders' investment," Mr. Campbell said.

Abbate also worried that large banks would rather be based in California or Florida, while taking deposits away from New Jersey.

"New Jersey is making a terrible mistake," he said. "They're not going to be the state of choice. Nobody's taken the pulse of what the constituency wants."

But "opting in" has found favor among the larger community banks, particularly active acquirers such as Union City's Hubco Inc.

"I don't believe that many banks would come in and establish single branches and choose de novos as the way to expand in New Jersey," said president and chief executive Kenneth T. Neilson.

The New Jersey Bankers Association and the New Jersey Savings League have not taken a position.

The Community Bankers Association of New Jersey will meet Oct. 24 in Bridgewater Township to decide what position to take on the issue.

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