A former Shawmut National Corp. executive is spearheading an effort to found New England's first bankers' bank with $5 million from Connecticut community banks.

Bankers' Bank of the Northeast would offer the state's 101 community banks the back-office services they need to compete with large-bank rivals, said Peter J. Sposito, the bank's founder, president, and chief executive.

"The goal is to assist community banks to compete effectively by taking advantage of economies of scale," Mr. Sposito said. "We think the time is right now because the community banks are willing to outsource, today, functions that they were unwilling to outsource in the past."

The bankers' bank still must raise $5 million in capital from participating institutions to satisfy regulatory requirements. Mr. Sposito said he expects to have commitments from at least 21 institutions by July 4, which would guarantee no more than 5% ownership for any one institution.

The bankers' bank would initially limit itself to Connecticut, he said, but he has already received inquiries from Massachusetts institutions. The bank will eventually expand to cover other parts of the Northeast, he said.

Top Five Bankers' Banks Assets In millionsTexas Independent $317Bank, DallasBankers' Bank $238AtlantaUnited Bankers' Bank $110Bloomington, Minn.Independent Bankers' $99Bank of FloridaOrlandoFirst National Bankers' $91Bank, Baton Rouge, La.

As of Sept. 30

The Glastonbury-based institution would join 16 other U.S. bankers' banks. They range in asset size from $317 million at Texas Independent Bank in Dallas to $14 million at Independent State Bank of Ohio.

The push to start the region's first bankers' bank comes as New England emerges from the economic doldrums and gears up for more consolidation. Connecticut still lags the rest of the region in its overall recovery, but Mr. Sposito said that could work to the bank's advantage.

"You're in a situation where the banks are just coming out of a difficult period," he said. "The banks have been through the toughest times, and they're more focused than they were five years ago on controlling costs."

Bankers' banks, which do not provide retail services to the public, are controlled by community banks and offer them operational, investment, credit, and advisory services via outsourcing deals with vendor companies. These banks also help their customer banks make loans over the members' legal lending limits.

Potential customers for the Connecticut institution include the state's small and midsize banks and thrifts, which have traditionally pursued independent strategies, Mr. Sposito said.

Some community banks have correspondent relationships with regional institutions. But large and small institutions are less willing to work with each other as larger banks have downsized their correspondent departments, stressing commercial and consumer lending, Mr. Sposito said.

Also, large banks are finding that the correspondent banking system isn't generating the profits they had hoped for, while small banks are not confident that their correspondent banks will survive the industry's consolidation, said Helge Christensen, president and chief executive of the Bankers' Bank in Madison, Wis., who is familiar with the Connecticut initiative.

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