As president of the Connecticut Bankers Association, Gerald M. Noonan is paid to promote his industry to outsiders.
But these days, a somber Mr. Noonan wonders aloud whether the changes roiling the industry in economically afflicted Connecticut are benefiting either the institutions or their customers.
"Consolidation is the most critical development going forward," he said in a recent interview. "But whether this is good for banks or whether consumers and smaller businesses will be better served is anybody's guess."
The doubts gnawing at the minds of Mr. Noonan and other banking officials in the state are related to a rapid and noticeable decline in the number of banks. While the natural force of consolidation contributed, the process in Connecticut has been hastened by a weaker-than-average economy.
A sustained downturn in the defense industry has caused thousands of layoffs. Hartford, once a thriving capital city, has been turned into a half-empty shell of vacant offices and parking lots.
Since 1989, the number of banks in Connecticut has dropped to 95 from 169, according to the bankers association. More than 40 failed in the last seven years, many succumbing to problems with speculative real estate lending.
Nineteen new banks have obtained state or federal charters, but five of those have either failed or merged with other institutions. Twenty-nine banks have either merged or been acquired by local banks or superregionals building multistate franchises.
That has left the Connecticut banking market dominated by a handful of large out-of-state institutions and locally based midsize players. Four companies - Fleet Financial Group, People's Mutual Holdings, Webster Financial Corp., and Bank of Boston Corp. - together hold more than 50% of the market, according to the state Department of Banking.
Fleet, the most aggressive buyer to date, holds $13.6 billion of deposits in Connecticut, or roughly one-quarter of the state's $52.7 billion total.
Meanwhile, several pending deals will intensify concentration. Among them: First Union Corp.'s acquisition of $3.6 billion-asset Center Financial Corp. in Waterbury; Citizens Financial Group's acquisition of Farmers and Mechanics Bank in Middletown; and Union City, N.J.-based Hubco's deals for Bridgeport-based Lafayette American Bank and Trust Co., Bank of Darien, Westport Bank and Trust Co., and the Connecticut subsidiary of UST Corp., Boston.
Few bankers deny that Connecticut's market was saturated and that a shakeout was due. But they appear stunned by the speed at which consolidation has taken place and the likelihood it will continue for some time.
Mr. Noonan, for one, is having second thoughts about the merits of consolidation.
"Industry consolidation is premised on cost savings of delivery systems, but that premise has not yet been proven," he said. "There's no evidence to date that these are better institutions, and over time, you really have to wonder whether smaller or midline borrowers will be well served if consolidation is too complete."
The sharp drop in the number of banks in the state, coupled with job losses and a sluggish economy, has added to a growing sense of malaise in Connecticut, he added.
"Most of the announced deals don't present any difficulties from the standpoint of safety and soundness," said Connecticut's banking commissioner, John P. Burke. "Where I'm having a problem is the effect on the communities and on employment."
John Carusone, president of Bank Analysis Center Inc., a Hartford-based investment banking boutique, argued that Connecticut is following Texas, where large institutions fell victim to regional and superregional "carpetbaggers."
"The jury's still out in terms of what the legacy will be for the economic development of the state," he said "but what's clear is that the locus of decision-making over banking in Connecticut has shifted out of state."
Harvey Koizim - a former banker who founded the Connecticut Urban Reinvestment Endowment, a New Haven-based nonprofit organization that studies bank lending patterns - is worried as well.
"Consolidation will definitely have a negative impact," he predicted. Connecticut has always been a hometown-bank state, he said, "and this can't help but make it more difficult for small businesses to get money."
Some argue that, whatever the current concerns, strong economic logic underpins the steep drop in the number of Connecticut banks.
"Consolidation has and continues to be inevitable, given the significant overcapacity within Connecticut's banking industry," said James C. Smith, president and chief executive of Waterbury-based Webster Financial Corp., which has $4 billion of assets.
Several observers also said Connecticut's vanished banks were responsible for their own demise.
"Consolidation was inevitable after the debacle of '90 and '91 when there was clear evidence of mismanagement of major banking institutions," said David Carson, chairman, president, and chief executive of People's Mutual Holdings in Bridgeport. "The institutions that can effectively change the way they do business are going to survive."
In many respects, Connecticut is a microcosm of the kind of consolidation occurring nationwide. But some characteristics make Connecticut unique.
Mutual thrifts, for example, account for about half the banking assets in Connecticut, and they have the same powers as banks. Many are well entrenched in Fairfield County, the most affluent part of the state. And as mutuals, they can't be acquired if they don't want to be.
Meanwhile, midsize banks have taken advantage of consolidation. Webster, for example, has taken over several other local banks, and it acquired more than 20 branches and $1 billion of deposits from Fleet Financial when it divested holdings last year in connection with its acquisition of Shawmut National Corp.
"Consolidation has enabled us to extend our franchise into attractive contiguous markets," Mr. Smith said.
Some smaller community banks, too, are extending their reach. New England Community Bancorp, a holding company headquartered in Windsor, a suburb north of Hartford, has been swapping equity with small community banks and centralizing back-office operations to save expenses.
David A. Lentini, president and chief executive of the $450 million- asset group, said it makes sense for smaller banks to band together as consolidation increases. His group "has no intention" of being folded into a larger entity, he said.
"Consolidation has helped define the choices in Connecticut," Mr. Lentini said. "Big banks may have lower cost of funds, but the difference is that I can hand out my card and tell a customer: Call me over the weekend at home if you run into any problems."
With consolidation already so extensive, some Connecticut bankers suggest local institutions are well positioned to pick up disenchanted customers. They also predict a surge in start-ups, especially if the state's economy begins to bounce back.
"You have to look at the history of business in America," observed Mr. Lentini. "Every time the pendulum swings too far in one direction, it starts swinging back in the other." If the state's bank total falls below 70, he said, new banks would start cropping up.
Although some Connecticut bankers lament the changes taking place, they also doubt the state will ever wind up polarized into a market with only big banks and community banks.
"Banks that remain agile enough to keep up with the changes won't disappear," Mr. Carson said. The others "are going to go over the cliff and die with the buffalo."