As competition has intensified, with thrifts becoming more like banks and many nonbank companies expanding in traditional banking areas, banks have often looked elsewhere for new business.

Some have turned to so-called "niche banking," finding narrower markets that had been neglected.

High on the list of successes has been Bankers Trust Co. of New York, which sold off branches and concentrated on trading and investment banking.

To succeed this way, giving up deposit banking to become a quasi bank investment dealer, takes an awful lot of talent. But lots of less sophisticated kinds of niche banking also succeed.

'If You Can't Lick Them...'

Years ago, Union Bank in California made a niche decision. At the time, the state's predominant retail banking operations were savings and loans, which burgeoned through aggressive solicitation of savings and home mortgages.

Union took an "if you can't lick them, joint them" approach. It thinned its branch network to four big offices, which did not solicit retail deposits or mortgages in competition with the S&Ls.

The Garment Game

To take up the slack, Union solicited the thrifts' transit and clearing operations. Since it was no threat, the thrifts flocked in. Union served as their very effective correspondent bank -- and incidentally gleaned the deposits that thrifts must make with a correspondent.

Another example of niche banking was Commercial State Bank of New York, now part of NatWest.

Commercial State would so cater to the garment industry that traditionally cash-short manufacturers could write checks with no money in the bank.

They knew that their bank, instead of just bouncing the checks, would call to find out which ones the manufacturer wanted bounced and which would be covered with cash on the counter. (The cash was often obtained from rather expensive and notorious sources if the manufacturer absolutely needed it to stay in business.)

Charging extra for each check that got this special attention, the bank did all right.

Door-to-Door Service

Today we also have some interesting niche banking examples.

In South Florida there is Jefferson National Bank, which has come out of the state's real estate debacle fairly clean.

Instead of just concentrating on loans to builders and businesses. Jefferson National also stresses service to retirees.

It is legend in the Miami region that the proverbial little old lady can call up the secretary of CEO Arthur Courshon and say, "I'd like to come in to the bank today," and the secretary will reply," We will send Mr. Courshon's car to pick you up to 3 this afternoon, as he won't need it until 5."

You can bet that the lady who travels to the bank in the chairman's limo is not going to move her account for few fractions of a percent in interest. But to the bank, those fractions add up.

No-Branch Banking

In New Jersey we have Bergen Commercial Bank, which does not even have a ground-floor office.

The bank concentrates on small business, MDs, and CPAs. It even sends out messengers -- largely retirees working part-time -- to handle all non-cash banking transactions right in the customer's office.

The bank finds that the MDs are a great source of business; the financing of malpractice insurance and medical equipment are "sure pay" operations.

Bergen Commercial also has another service that other banks around the country might want to imitate.

In many states CPAs, who can be great sources of referral business, must take courses to keep their licenses.

Bergen Commercial sets up and runs such courses free of charge for its CPA clients. By carefully picking the topics and screening the speakers, the bank has made these programs a real success.

Furthermore, if a customer wants a service Bergen Commercial does not want to offer, such as a mortgage, the bank will gladly work as an unpaid agent to find someone to provide it.

I have seen a steel warehouse do the same sort of thing: buy a batch and resell at cost because that was cheaper than shifting inventory to get to the bottom of a pile.

Car Wash

In short, there are banks and there are banks. And sometimes bankers read so much about diversification they forget that most customers' needs are simple, but often specialized.

Maybe the best example of how banks can differ in their niche marketing was the attitude of Western Penn National Bank, now called Equibank, when it moved into Pittsburgh.

Equibank decided it could live off the customers that the other banks insulted. But its niche banking went further.

People in Pittsburgh would report: "If you open an account at Mellon, you will get Wedgwood china. If you open an account at Western Penn, they will wash your car."

Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.

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