An effort to rewrite Hawaii's year-old interstate branching law is pitting the state's two largest banks against its smallest.

Market-dominating Bancorp Hawaii and First Hawaiian Inc. are supporting legislation to eliminate restrictions on interstate branching. But little Bank of Honolulu is opposed.

Last year the state opted in to the federal Riegle-Neal interstate branching law but barred out-of-state banks from entering by simply opening or buying a branch.

Under the new state law, which will take effect in June, newcomers must buy a whole bank that is at least five years old; they could then turn it into a branch.

But legislation pending in the state House and Senate would eliminate that restriction in three years as well as a 30% cap on deposit market share. Bancorp Hawaii and First Hawaiian each control about 40% of the market.

"These same restrictions apply in most other states. Why should Hawaii be different?" said Terrill Chock, executive vice president of Bank of Honolulu. "Does our state Legislature consider our own banking system less important than those in other states?"

Officials of Bancorp Hawaii and the Hawaii Bankers Association, which is not taking a position because of the split in its membership, said the legislation supported by the two large companies would merely fulfill a compromise reached last year between bankers and lawmakers.

Under that agreement, the Legislature passed the restricted opt-in law but instructed Banking Commissioner Lynn Wakatsuki to study the impact of the limits on Hawaii and make recommendations. In January, Ms. Wakatsuki urged that the restrictions be dropped.

Bancorp Hawaii and First Hawaiian want to change the law because liberal branching laws in other states and territories require reciprocity from Hawaii. That could affect the banks' expansion plans in Guam and on the mainland, where Bancorp Hawaii has a subsidiary in Arizona and First Hawaiian has branches in Washington, Oregon, and Idaho. Bancorp Hawaii also announced Tuesday that it would buy CU Bancorp, Encino, Calif.

"We believe that we have to send a clear message that Hawaii, in preparing for the future and to be a player in the global market, needs to be open," said Gil Tam, senior vice president of Bank of Hawaii.

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