Colorado's legislature has become the first in the nation to reject the federal interstate branching law.

In a major victory for the state's independent banks, both chambers of the legislature this week overwhelmingly approved a plan to bar banks from branching into or out of the state. The federal law, adopted last year, explicitly allows states to "opt out" of the provisions.

The Colorado legislation, which awaits the signature of Gov. Roy Romer, could encourage other states to thwart interstate branching. Opt-out measures are pending in eight other states in the central and western parts of the country.

"Victories do tend to build," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America. "The success in Colorado will have a positive effect on other states that have developed independent bank lobbies."

Independent banks in Colorado have argued that branching would further weaken the competitive position of locally controlled banks. Big banks tout interstate branching as best for consumers, the economy, and the banking industry as a whole.

Colorado's largest banks have not yet given up. They are pressing Gov. Romer to veto the bill. The governor, a Democrat, is "still researching both sides of that issue," a spokesman said.

"We're hopeful that reason will prevail and the governor will veto this bill, and that his veto will be sustained," said Will F. Nicholson, chairman of Colorado National Bank, a unit of Minneapolis-based First Bank System Inc.

Similar battles are taking shape in the seven states with opt-out bills pending. Those states are Texas, Nebraska, New Mexico, Oklahoma, Missouri, Kansas, and Montana. Wisconsin is also expected to debate opt-out legislation this year.

The Independent Bankers of Colorado has lobbied heavily for opting out. The Colorado Bankers Association also supported the opt-out effort, but only after a public split with its five largest members.

Those five banks - Colorado National, Banc One Colorado, Key Bank Colorado, Norwest Colorado, and First Interstate Bank of Denver - have opposed opting out.

Roy Whitehead, chief executive of First Interstate Bank of Denver, said he and representatives of the four other large banks in the state met with Gov. Romer and his staff last week.

"He was gracious but noncommittal," Mr. Whitehead said. "Obviously we'd like for him to veto this bill . . . If he does sign it and it becomes law, we will explore other options. We hope that doesn't happen, because it will send a negative perception of our state to the rest of the country and force us to spend time and resources in ways that aren't productive."

Gov. Romer has 10 days to sign the bill. If he doesn't sign it, it becomes law automatically.

If Gov. Romer vetoes the bill, a two-thirds majority in both chambers would be needed to overturn it. The way the votes lined up in favor of the opt-out bill, proponents have a two-thirds majority in the house but not in the senate.

James Thomas, executive manager of the Independent Bankers of Colorado, said he has met with Gov. Romer several times during the last year but the governor never articulated a position.

Mr. Thomas said the state's biggest banks, all owned by out-of-state holding companies, are feeling the backlash of their rush to buy up the bulk of the state's banking market and are viewed as being heavy-handed with legislators and the local trade group.

"The simple fact of the matter is that the reason this bill was passed so overwhelmingly was because of the way those bank holding companies have treated Colorado bank customers," Mr. Thomas said. "When they passed interstate banking years ago, all the big banks promised that Denver would be the biggest financial center between St. Louis and San Francisco. Well, they've listened to their constituents complain about called loans, loans not being renewed, and impersonal service from someone in Minneapolis and, well, it added up."

Colorado National's Mr. Nicholson said he feels that not all the facts have been aired in the debate.

"They've put up a lot of stories about the flight of capital from Colorado," he said. "Well, in the last year our deposits here have gone down but our loans have gone up. We're a net importer of capital."

First Bank System chairman John Grundhofer was in Denver this week to lobby for branching. And Mr. Nicholson said he and representatives of the other large banks are working with the Colorado Bankers Association to revamp its bylaws to take into account the sheer size, if not number, of the out-of-state-owned banks in voting on policy.

If that happens, the Colorado Bankers Association could switch its position and push for new legislation that would repeal the opt-out law before 1997, when the federal interstate branching law takes effect.

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