modernization bill, but one thing they are celebrating is victory over Wal-Mart Stores Inc.

The Bentonville, Ark., retail giant has symbolized the worst fears of small-town bankers since it unveiled plans in June to buy an Oklahoma thrift. A provision in the financial modernization bill that would close a legal loophole allowing commercial concerns to own a single thrift has quieted concerns that Wal-Mart would invade bankers' turf and steal their customers.

"For community bankers, closing the unitary thrift loophole was (priority) No. 1, 2, and 3," said Joe Williams, president and chief executive officer of $81 million-asset American Heritage Bank in El Reno, Okla.

Furious lobbying by community bank trade groups apparently paid off when Congress last week voted to eliminate the unitary thrift charter. The bill grandfathers existing unitary thrifts and any companies that applied for the charter before the end of May. But it prohibits those thrifts from selling to a companies that are not providers of financial services.

"I give a lot of credit to our banking organizations in Washington," said C.R. Cloutier, president and CEO of $300 million-asset MidSouth Bancorp in Lafayette, La. "This is one of their finest hours."

To be sure, community bankers remain concerned about the sweeping legislation, which would allow more banks, insurers, and brokerage houses into each other's businesses. While they generally praised some of the provisions -- easier access to the Federal Home Loan Bank System and relaxed Community Reinvestment Act examination schedules -- some worried that the bill would only accelerate concentration of financial power.

"This hasn't stopped the mergers of massive conglomerates," said Robert N. Barsness, president of $100 million-asset Prior Lake (Minn.) State Bank. "We're going to see more mergers, which means further consolidation of financial resources. I'm not sure that's good public policy."

But bankers could barely contain their glee over the decision to crack down on incursions from nonbanks. Since January 1997, the Office of Thrift Supervision has approved applications from 81 retailers, insurers, and other nonbanks that sought to enter the banking business. Another 57 are pending, including that of Wal-Mart, which applied June 29 to buy $26 million-asset Federal BankCentre of Broken Arrow, Okla.

OTS officials acknowledged that Wal-Mart's filing came after the May 31 deadline, but said they would continue to process all applications until the bill becomes law.

If the bill is signed into law, it would eliminate the one issue that has most divided banks and thrifts in recent years. The American Bankers Association and the Independent Community Bankers of America have both been seeking to outlaw unitary thrifts while America's Community Bankers, which represents thrifts, has strongly argued to retain the charter. Friction over the unitary thrift even helped quash merger talks between the ABA and ACB.

Ironically, Wal-Mart's bid to enter the banking arena may have aided commercial bankers' efforts to abolish the unitary thrift charter, said Mr. Barsness, who is also chairman of the ICBA. In his view, publicity surrounding the Wal-Mart application raised lawmakers' awareness of what had been a murky issue.

"Wal-Mart really brought this to the forefront," said Mr. Barsness. "There was always this question of, 'are they going to lend to the local hardware store or the local clothing store that they're trying to put out of business?' It started to really come into focus for members of Congress."

B.A. Donelson, president and CEO of $120 million-asset First State Bank in Stratford, Tex., wondered why regulators were approving new thrift charters when so many thrifts failed earlier this decade. He said his bank paid $400,000 a few years ago to rescue an ailing thrift, which has since been turned into a profitable commercial bank.

"Now they are out there giving people thrift charters and letting them do whatever they want with them," said Mr. Donelson. "It just doesn't seem right."

Wal-Mart has yet to comment publicly on the financial reform bill and company officials did not return calls. But at least one unitary thrift supporter said Congress is making a mistake.

E. Lee Beard, president of First Federal Bank of Hazleton (Pa.), a $610 million-asset unitary thrift, said commercial firms often help thrifts by infusing them with more capital. She also said fears of Wal-Mart and similar companies taking over the banking business are overblown because they "would have to play by the same rules" as other banks.

"I have never seen the problem with the unitary thrift and I don't understand why more cannot be created," said Ms. Beard, who is also chairman of America's Community Bankers. "I think the legislation in general ends up taking away a real opportunity for services to be provided."

Still, the charter hardly had the support of all thrift executives.

James D. Shelton, president and CEO of $1 billion-asset First Federal Savings & Loan Association of East Hartford (Conn.) said that while he supports "flexibility" in the thrift charter, "the whole issue of mixing banking and commerce has made me uneasy.

"We are taking a big enough leap saying that banks, insurers, and brokerages can exist under the same company," said Mr. Shelton. "My feeling is that we should get comfortable in that world before worrying whether other retailers and casket companies can own banks."

Louis Whiteman contributed to this article.

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