Cross-industry transactions such as the recent Citicorp-Travelers Group deal worry community bankers more than megabank mergers.
A recent survey, conducted by the Independent Bankers Association of America, also indicated that some community banks may rethink their technology investments and consider mergers of equals to build efficiencies and remain competitive.
The IBAA survey showed 88% of community banks were more concerned about cross-industry marriages than blockbuster banking combinations such as the recent NationsBank-BankAmerica deal, which community banks often cheer.
Community bankers said massive cross-industry consolidation creates advantages for larger institutions, which will seize the opportunity to cross-sell a breadth of financial products and services.
"Cross-industry consolidation ultimately creates a lack of competition," said Terry Jorde, president and chief executive officer of Towner County State Bank in Cando, N.D., "and squeezes the little guys out of the market."
About 670 bankers responded to the IBAA survey, for a 7% response rate. About 37% of the banks polled had under $50 million of assets, 32.5% were between $50 million to $100 million, and 30.5% had assets over $100 million.
To remain competitive, more than 70% of these banks intend to launch products such as on-line banking, insurance, investment products, and debit and ATM cards.
Ms. Jorde, for example, said Towner County plans to buy an independent insurance agency in North Dakota this year to complement its own insurance capabilities. Towner County, a $26 million-asset bank, also hopes to unveil Internet banking by yearend.
Monique Hanis, a spokeswoman for the IBAA, said community banks are also trying to capitalize on industry consolidation through aggressive radio, television, and print advertising.
Meanwhile, about 52% of the banks surveyed acknowledged that mergers across the financial services industry somewhat alter their long-term strategy, as many realize a broad scope of products will be needed to compete.
The survey found the smallest banks the most doubtful that they could compete with companies formed by huge mergers. Less than 43% of under-$50 million banks but more than 65% of over-$100 million banks said they could compete.
