When Kentucky Trust Bank in Beaver Dam wanted to open a branch outside its home county two years ago, it was blocked by a law that tightly limits branching within the state.
The bank said it eventually found a legal loophole and opened a branch in a neighboring county. But the experience left Kentucky Trust's president wishing that the Bluegrass State - like 42 others - allowed its 263 banks to branch wherever they choose.
"We can't build fences around ourselves to keep out competition," said Brooks Mitchell, president and chief executive officer of the $70 million-asset bank. "There are no restrictions against new competitors in the insurance and brokerage industries from moving into our markets.
"We've got to be free to compete."
Mr. Mitchell's wish may soon come true.
A bill that would remove barriers to intrastate expansion by banks is working its way through Kentucky's General Assembly with bipartisan support. The state's House approved the measure 74-18 last week, and its Senate Banking and Insurance Committee is scheduled to hold hearings on the proposal next week.
Bankers who support the measure say it would level the playing field with nonbank competitors whose powers grew last year when Congress passed the Gramm-Leach-Bliley Act.
"The community bank has served as the economic locomotion for rural America, and Kentucky especially," said Charlie Beach, chairman of $104 million-asset Peoples Exchange Bank of Beattyville. "But we have to be able to grow to compete."
Kentucky is one of the few remaining states that do not let banks branch anywhere they desire. Only seven others have some form of branching restriction - Georgia, Iowa, Minnesota, Nebraska, North Dakota, Oklahoma, and Wyoming - according to the American Bankers Association.
Kentucky currently lets its banks branch outside their home counties only if the new branch would be less than 30 miles from an existing one and the bank agreed to move its headquarters to the new site. That is how Mr. Mitchell's bank opened its branch in 1998.
Though the legislation would repeal that restriction, many community banks fear it would prompt competition from large national banks that might roll into their markets. They also worry that losing a lock on their markets would bring down their prices should they be bought.
"This is going to severely lessen the franchise value of community banks," said Mitchell Bennett, president and chief executive officer of $63 million-asset Farmers Bank in Hardinsburg. "I think that some banks are using this as a crutch to gain less expensive access to markets."
Mr. Bennett is not alone in his opposition.
Before similar legislation was introduced last year, the Kentucky Bankers Association surveyed its members. It found that 59% favored the reform and the rest were opposed.
Because the association only backs legislation that 60% or more of its members support, it did not lobby for last year's bill, which failed.
But in a follow-up survey last summer, the association found that 63% favored statewide branching and 70%, some sort of branching reform.
The legislator spearheading the bill said that banks still opposing it should "wake up."
"I'm not even a banker, and I can see that the good old days - when their only competition came from other banks in their home market - are over," said Rep. James Bruce, D-Hopkinsville.