BankAmerica Corp. has overtaken Chase Manhattan Corp. as the leader in correspondent bank balances.

Including its merger partner, the former NationsBank Corp., Charlotte, N.C.-based BankAmerica holds $4.3 billion of deposits from other banks.

Chase, with $3.9 billion of such deposits, had held the top spot for four years, according to statistics compiled for American Banker by a sister company, Sheshunoff Information Services Inc. of Austin, Tex.

In the correspondent business, large banks hold deposits on behalf of smaller institutions and in return offer services that the latter would find too expensive to provide on their own, such as check clearing, large- scale wire transfers, and letters of credit.

Goleta (Calif.) National Bank, for example, does not have a trade finance division, so if an international customer needs a letter of credit, it obtains the document from upstream correspondent Union Bank of California.

"We can't say, 'Sorry, we don't have that service,' or we may lose that customer," said Lynda Pullon Radke, chief financial officer at $174 million-asset Goleta.

Mergers and consolidations have changed correspondent banking in recent years. Fewer big banks now control a larger share of the market, but overall deposits have actually fallen slightly because the number of banks is dwindling.

Deposits at the 25 largest correspondents, aggregated by holding company, grew 19% in the 12 months through June 30.

"When I started in banking, there were at least half a dozen banks in Boston that offered correspondent banking services," said Peter J. Sposito, president of Northeast Bankers Bank in Glastonbury, Conn., who worked in the former Shawmut National Corp.'s correspondent division for 25 years. "Now there are two, Fleet and BankBoston."

In one consolidation example, First Union Corp.'s deposits went up 192%, mainly due to its purchase of CoreStates Financial Corp. of Philadelphia. First Union is ranked 12th.

Though correspondent deposits for the top 50 were up, those for all commercial banks were down 1.7%, to $37.7 billion. But deposits alone do not tell the entire story of big banks' relationships with smaller banks.

At BankBoston Corp., correspondent deposits fell 9%. Rick Hilperts, managing director of the bank's domestic correspondent division, explained that many small banks are paying fees for services instead of maintaining deposit balances because they can get better returns on their money elsewhere.

"Even if we're not getting their deposits, we're still getting their business," said Mr. Hilperts.

To get that business, correspondent banks rarely stray too far from home. Thomas P. Swindell, senior vice president for financial institutions at First National Bank of Maryland, said a correspondent needs to be close to its customers to deliver such services as coin and currency or cash management. Instead of trying to build its business by entering new markets, First National focuses mainly on selling new products to its 300 or so customers in the Middle Atlantic region.

Still, some community banks have grown reluctant to do business with traditional correspondents in their own markets.

A group of New England bankers recently ponied up nearly $6 million to finance Northeast Bankers Bank in part because their main correspondents- Fleet Financial Group and BankBoston-are also their chief competitors.

Community National Bank in Waterloo, Iowa, does its correspondent banking with distant institutions: Bankers Bank of Wisconsin and LaSalle National Bank in Chicago.

"I don't feel comfortable using the services of a bank here when we are competing for the same customers," said Joseph M. Vich, president and chief executive officer at $80 million-asset Community.

Correspondent bankers acknowledge that some customers are uncomfortable about sharing trade secrets with competitors. But Mr. Hilperts said it would not benefit BankBoston to pass on information about its correspondent customers to other divisions of the bank.

"If we did that, we might pick up one new borrower, but we'd lose 400 correspondents," he said. "We think that's a pretty bad trade."

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