Bankers' Bank for Northeast, Last Region Lacking One

Reluctant to do business with the few large banks still offering correspondent services in their region, a group of New England community banks has created its own bankers' bank.

More than four years after the first plans were sketched, Bankers' Bank Northeast is to open today in Glastonbury, Conn. It is to target community banks in all six New England states and eastern upstate New York.

A bankers' bank offers the same correspondent services as the big banks do, including fed funds transactions, commercial real estate underwriting, and check clearing. These services are usually too expensive for community banks to handle on their own. Bankers' Bank will also sell bulk-rate, long- distance telephone service.

It differs from a consumer-oriented institution because it can only be owned by, and only does business with, other banks.

Peter J. Sposito, president of the new bank, said the wave of big-bank mergers has left community bankers with few choices for correspondent services.

"Years ago, there were dozens of banks competing for correspondents' business around here," said Mr. Sposito, who worked in the former Shawmut National Corp.'s correspondent banking division for 25 years. Now, two companies-Fleet Financial Group and BankBoston Corp.-dominate the business in New England.

With so few banks offering correspondent services, it is often impossible for a community bank to avoid doing business with a company that is also a rival for consumer accounts. And that does not sit well with many community bankers.

"I am in the business of competing with these guys for customers; I don't want to be providing them with a steady stream of revenue," said Michael J. Brennan, chief financial officer at $525 million-asset Peoples Savings Bank, Holyoke, Mass.

Until today, New England was the only region of the country not served by a bankers' bank. Seventeen other similar banks operate across the nation.

Bankers' Bank Northeast has 35 community bank shareholders that have invested a combined $5.8 million of start-up capital. These investors said they anticipate their new bank will give them access to the same discounts available to bigger banks.

"We are combining our asset size and our transaction volume to get the pricing a bank my size can't get on its own," explained Donald A. Cipriani, president and chief executive officer of $105 million-asset Eastern Savings and Loan Association, Norwich, Conn.

Mr. Cipriani estimated that Eastern Savings would shave 15% from the cost of its armored car service by buying it through Bankers' Bank. Spokesmen at BankBoston and Fleet said they would not comment on a competitor.

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