Community banks have been dealt another defeat in their battle to limit the impact of the interstate branching law that takes effect nationwide in 1997.
On Tuesday, a California Senate committee rejected a plan that would have required out-of-state banks to buy a whole bank to gain entry into the state.
California's independent banks had pushed the plan as an amendment to a bill pending in the state Senate under which California would "opt in" to interstate branching this year.
That stance put them squarely at odds with the state's biggest banks, which support the bill. The pending measure, which would also permit single-branch purchases as a means of entry by out-of-state banks in two years, is expected to win passage, perhaps as soon as next week.
The debate points up the divisions in the banking industry in the West - and the might of the big banks. No western state has yet exercised a provision of federal law permitting states to opt out of interstate branching - and several have decided to opt in early.
At Tuesday's committee hearing, 30 community bankers told the Senate Committee on Banking and Commerce that opting in to interstate branching would harm their franchises and hurt the state's employment.
"There's going to be a rush to sell the independent banks between now and 1997," said Charles T. Chrietzberg Jr., chairman and chief executive of Monterey County Bank, Monterey, Calif. "Because after that, there's going to be a question as to the franchise value if an out-of-state bank can come in and just buy a branch."
"For the California Bankers (Association) to claim that the majority of the community banks support this is ludicrous," said Craig L. Hudson, executive director of the California Independent Bankers.
But the whole-bank entry amendment was soundly defeated by lawmakers after testimony by the California Bankers and a warning from the committee chairwoman that it could hurt the bill's chances of passing.
"The large percentage of community bankers don't feel threatened by interstate banking," said Gregory O. Wilhelm, lobbyist for the California Bankers. "The Independent Bankers struggles hard to create this impression that there's this huge schism between large banks and small banks, and it just doesn't exist."
The Independent Bankers will continue to pursue an amendment, but Mr. Wilhelm said he expects the bill to pass.
California is one of four states in the West where the debate over interstate branching has split the industry along big bank/small bank lines.
In Texas and Colorado, independent bankers pushed opt-out legislation through the state legislature despite fervent opposition from larger banks. Opt-out proponents won in Texas but lost in Colorado after a gubernatorial veto.
New Mexico's few community banks fought bitterly for an opt-out law this year, but lost. Kent Carruthers, president of the New Mexico Independent Bankers, said the group won't fight the automatic implementation of interstate branching in 1997.
"We don't have the influence," he said.
Mr. Wilhelm noted that the California bill would ensure that state- chartered banks aren't at a disadvantage with national banks or state banks in surrounding states that have already opted in, such as Oregon, Nevada, Idaho, and Utah. Arizona and Washington State are expected to follow suit.
That would help banks like Sierra Tahoe Bancorp, Truckee, which has a Nevada subsidiary that it would like to consolidate with its California bank.
"We feel that it doesn't really make a lot of difference which big bank's across the street," said William T. Fike, president and chief executive of Sierra Tahoe.
