Most start-ups banks are formed in markets where big banks have bought small ones, a Kansas City Fed study shows.

Acquisitions in which the control of local banks shifted out of the area also led to a rise in start-ups, according to the study, which reviewed bank merger and start-up activity from 1995 to 1999.

But deals involving small banks in nearby markets had almost no such effect.

"It's more difficult for big banks and banks with long lines of managerial control to provide the personal service that many customers like," said William R. Keeton, the senior Federal Reserve Bank of Kansas City economist who led the study. "It's natural for community banks to step in and appeal to that segment of the market when there's a gap created by bank mergers."

When large banks or nonlocal banks acquired more than half of a market's deposits within a three-year span, new banks formed at a rate five times faster than in markets with no merger activity.

The study also found that the total number of banks increased by 3.5% per year on average in markets with high levels of mergers compared with only a 0.5% increase in markets with no mergers.

Illinois banker John Eilering has witnessed how mergers can open the door for new banks. After all, he started such a bank himself.

Mr. Eilering worked at First National Bank of Mount Prospect, outside Chicago, for 11 years before it was sold to Detroit-based NBD Bancorp in 1991. He was president of NBD's Mount Prospect operation when First Chicago swallowed NBD in 1995. He jumped ship before First Chicago sold out to Bank One Corp. in 1998.

He opened Mount Prospect National Bank in September 1997. The bank now has $134 million of assets.

"People like the concept of community banking, and they missed what they had before," said Mr. Eilering, president, and chief executive officer of the bank. "People were excited to have a community bank back in town."

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