Opponents of interstate branching are making a last stand in a group of nine central and western states.

Independent banks are building up financial and political capital in support of state bills to "opt out" of the federal interstate branching law.

The measures, which are given a better than even chance of passing, would gut the federal law within state lines and preserve the one-bank-per- state requirement that has long been opposed by banks operating in multiple states.

The momentum of the opt-out movement has come as a surprise to the architects of interstate branching.

"I don't understand it," said Stephen Neal, the former North Carolina congressman who co-authored the federal law.

"It sounds to me like the state legislatures are simply depriving their citizens of the benefits of competition," he added.

The federal law, signed by President Clinton last September, allows subsidiary banks in multiple states to be run as branches - a provision that could spell significant savings for big banks. But the law specifically allows individual states to opt out of the law.

Proponents of opting out argue that the federal law will give big banks too much firepower to set pricing within communities and will create inequities in the industry's regulatory burden.

The debate is perhaps most intense in Texas, home to more than 240 small banks and a host of superregionals.

"It's a bloodbath down here," said Catherine Ghiglieri, the state bank commissioner, who is neutral on the issue.

The Texas Independent Bankers Association has managed to unite agricultural and small business groups under the banner "Texans for the Preservation of Hometown Banking." The coalition has signed on members as diverse as the Independent Cattlemen's Association and the Texas Apartment Association to lobby legislators directly.

Meanwhile, debate is building in seven other states where opt-out bills have been introduced: Colorado, Kansas, Missouri, Montana, Nebraska, New Mexico, and Oklahoma. In addition, observers say, Wisconsin will likely see an opt-out movement later this year.

In Colorado, the issue made headlines when the state's five biggest banks, all of them owned by out-of-state holding companies, threatened to withdraw from the Colorado Bankers Association when the trade group's independent members voted to support an opt-out bill.

The big banks later backed off, but are now in the position of lobbying against their own trade group. The bill passed in the Colorado House by a huge margin last week and is now in the Senate.

As the opt-out movement accelerates, some 21 state legislatures this year will consider bills to "opt in" to the branching law before it takes effect in 1997. These states are mostly in the East and West coasts, and while some of the bills include restrictions on issues such as deposit concentration, they are expected to pass easily.

Another 20 state legislatures and the Council of the District of Columbia will not address the issue this year, but most will hold hearings on the matter.

In any state that doesn't take action, national banks will automatically be able to branch in 1997 under the federal law, formally known as the Riegle-Neal Interstate Banking and Branching Act.

What's at stake in the opt-out movement is the future structure of the nation's major banks in an area loosely bordered by the Rio Grande, the Rockies and the Mississippi.

Boatmen's Bancshares, NationsBank Corp., Commerce Bancshares, Chemical Banking Corp, Keycorp, Banc One Corp., Norwest Corp., BankAmerica Corp., First Interstate Bancorp, First Bank System, and Fourth Financial Corp. all have invested billions to build multistate operations there.

Together, these companies have better than $140 billion of assets, hundreds of branches, and thousands of employees in the states where opt- out movements are gathering steam.

Norwest, based in Minneapolis, may have the most to lose. It has spent hundreds of millions of dollars building a network of dozens of banks in Texas, New Mexico, and Colorado in the last five years. If the opt-out bills pass, Norwest's banks will remain just that: banks - each with its own president, board, and reporting structure.

"Obviously, we would prefer that they didn't opt out of interstate branching," said Bill Kelly, vice president of government relations at Norwest. "We hope that when these advocates of opting out go before their state legislatures, we can have a full airing on what such a move's impact would be on interstate commerce, the business climate, and the economy."

Mr. Kelly said Norwest is lobbying state legislators in the states where opt-out bills are alive, especially in Colorado. Along with other big banks, it is taking on the Colorado Independent Bankers Association and the Colorado Bankers Association.

"Where we can we work with the trade groups, we will,'' he said. "Where we can't, we have other allies."

The debate in the nine central states centers not on whether to opt in or opt out, but soley on whether to opt out or take no action at all. Except in Colorado, the support for opting out is coming from groups respresenting independent banks, and the opposition is coming from main bank trade groups.

A shaky truce reached late last year between the Community Bankers Association of Oklahoma and the Oklahoma Bankers Association collapsed last week. As a result, the Oklahoma Bankers are pushing for an early opt-in, and the Community Bankers Association is pushing for opt-out.

"The legislators told us they don't want a big fight this year between bankers," said James P. McKeown, executive manager of the community bankers group. "We thought we had an agreement with the OBA, but it fell apart."

Mr. McKeown said his members simply want to opt out now until interstate branching's impact on the state is determined, and aren't opposed to opting in at a later date.

"Hopefully we'll be able to discuss this issue rationally," said Roger Beveridge, executive director of the Oklahoma Bankers Association. "But the Community Bankers are really stirring up the pot."

In Nebraska, the situation is similar.

"We expect to be in the canoe all by our lonesome," said Kurt Yost, executive director of the Nebraska Independent Bankers Association, in describing his looming fight with the Nebraska Bankers Association.

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