WASHINGTON - If there is any truth to the axiom "The bigger they are, the harder they fall," then the latest figures on industry consolidation should be keeping regulators up at night.

Over the past 20 years, a relatively level industry playing field has become a land of giants and Lilliputians. The number of banks with more than $20 billion of assets has quadrupled, to 46, and in the process those institutions have laid claim to almost half of domestic deposits. Community banks, which held the lion's share of deposits in 1980, have seen their portion dwindle to 21%. That concentration of deposits has many analysts and former federal officials concerned that regulators are unprepared to cope with these new super institutions - a charge the regulators deny.

"Concentration may not be all bad, but it is all the more important that regulators develop procedures and the expertise to deal with it. I'm worried that not all the regulators have done that," said William Isaac, chairman of Secura Group in Falls Church, Va., and a former Federal Deposit Insurance Corp. chairman.

L. William Seidman, another former FDIC chairman and a CNBC commentator, agrees.

"As a former regulator, I can say that regulators are always behind the curve and trying to play catch-up," he said. "Risk to the FDIC has become more and more concentrated in these institutions, and I think this will be an increasingly important aspect of the banking system."

The two former regulators also concur that the agencies spend too much time squabbling over regulatory turf instead of making sure large institutions do not get into trouble.

"It's important they don't get tangled up in fighting with each other over who gave what to whom to regulate" under the Gramm-Leach-Bliley Act of 1999, Mr. Seidman said. "There is a real danger they could get caught up in that."

Mr. Seidman pointed to the failure last year of the First National Bank of Keystone in West Virginia, after which House Banking Committee Chairman Jim Leach accused the Office of the Comptroller of the Currency of keeping the FDIC from examining the bank until it was too late. Comptroller John D. Hawke Jr. took exception, and said in a mid-November speech that his examiners did everything right.

Regulators respond that they have developed procedures and expertise to deal with large institutions, and that they have adapted their exams accordingly.

Officials from the comptroller's office said they now supervise the 25 largest national banks on a daily basis, and have refined their exams to focus on risk.

"We have a strategy to deal with each institution that is unique to that bank," said Tim Long, deputy comptroller for large-bank supervision. "We have to be flexible and forward-looking in regulation, and we feel we are doing that."

FDIC officials said they have taken many precautions, including tactics specifically for big-bank failures.

"We are in the business of creating perpetual contingency plans," said Mitchell Glassman, director of the FDIC's division of resolution and receiverships. "I don't deny we are concerned about these big corporations, but we take this very seriously."

Both agencies said they have cooperated extensively with their counterparts at the other agencies, and that discussions continue on the best ways to solve problems of concentrated deposits.

"I would characterize our relationship with the other regulators as very fruitful," said Rae-Ann Miller, assistant director of operations for the FDIC. "We talk with each other often."

But a number of industry representatives still worry that there are too many "too big to fail banks" - institutions the government would rescue to prevent a systemic meltdown.

Though regulators tend to downplay this issue, some critics say the "systemic risk" exception in the Federal Deposit Insurance Corp. Improvement Act of 1991 is clear. That exception allows an institution to be saved if the Treasury Department, after consulting with the President, determines with the FDIC and the Federal Reserve Board that its folding would damage the economy.

Some hope that the FDIC's deposit insurance reform proposals, scheduled to be released Wednesday, confront the "too big to fail" controversy.

"They have to address it," said Kenneth A. Guenther, executive vice president of the Independent Community Bankers of America. "There can be no credible paper that does not discuss systemic risk and 'too big to fail.' There should be an intellectual spelling-out of where we are on it."

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