In 1981, when I entered correspondent banking, most independent banks in California relied on a correspondent bank for assistance in proof, item processing, transit processing, cash vault, wires, cash management, investment and loan services, and organizational loans and issues.

Typically the bank that made the organizational loans also acted as the primary correspondent (until management changes occurred). Compensating balances were used to pay for services, and it was normal for clients to leave excess balances-so this was a very attractive business for provider banks.

Banks entered into correspondent banking to use excess capacity and resources, subsidizing internal fixed costs. Correspondent banks have been provider-driven vendors.

The profits in correspondent banking have dwindled since then, and a major reason is the Monetary Control Act of 1980. Federal Reserve Bank nonmembers gained access to many services at attractive rates, and independent banks became more knowledgeable.

By the mid-1980s, increasing bank failures and the expectation of widespread merger-and-acquisition activity caused senior management of correspondent provider banks to reevaluate their commitment to correspondent banking. Those banks limited their credit support to this industry and discontinued services not yielding specific profitability ratios.

Mergers and the cavalier attitudes of correspondent players have been somewhat offset by the surfacing of new providers, some of which have been bankers' banks.

I believe bankers' banks are the long-term solution for independent banks.

Only banks can own a banker's bank, whose sole purpose is to provide products and services to them. Therefore, a bankers' bank can be the ultimate correspondent bank: a market-driven provider.

Independent banks realize the pitfalls of relying on traditional correspondent banks. That explains the success of bankers' banks.

And their potential is boundless. With a large client base, a bankers' bank has leverage with vendors that no one bank could negotiate on its own. But bankers' banks must avoid falling into the greed syndrome- selling "vendor of choice" status to the high bidder.

One advantage community banks have had is that decision makers are local and know their market. Similarly bankers' banks, whose investors are also its clients, are acutely aware of their needs.

Further, networks of bankers' banks could provide client banks with national banking access. That would help independents compete with the major and superregional banks.

Bankers' banks are not only for investor banks. Banks that expect to be acquired in the next year probably would be better served by not investing. All things being equal, independent banks should use a bankers' bank whenever possible and prudent.

Now is the time for banks and bankers to be creative- combining prudent banking knowledge with entrepreneurial attitudes.No one bank or banker has all the answers, nor are the answers the same for all. However, independent bankers working together to avoid redundancy and minimize costs can compete with major banks and nonbanks.

Your bankers' bank will be as effective as you allow it to be. It is a method of taking control of your own destiny without performing everything internally. Ms. Lewek is the founder of Lewek & Associates, a bank consulting firm in Culver City, Calif.

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