WASHINGTON - On July 14, banks in Kentucky gain the right to sell any product or provide any service authorized for any other institution, whether it is chartered by the federal government or another state. The Kentucky Bankers Association spent three years lobbying for the so-called "super-parity" law - a road to riches for banks chartered in the Bluegrass State.

"If you can't make $50,000 a year off that opportunity, you're the wrong guy in the wrong job," says Ballard W. Cassady Jr., the group's executive vice president.

Mr. Cassady cites $50,000 because that's the top fee his group charges, and he is using the law as evidence that membership is worth much more than the annual dues. But as state banks are being bought by out-of-state holding companies, local trade group officials are having a hard time retaining members. "You truly feel like a veteran soldier trying to talk to someone who has never been to war," says the 49-year-old former banker. "There is no understanding of what you do for them."

While they are less willing to speak on the record, other trade association executives echo Mr. Cassady's fears and insist the trend threatens to undermine the banking industry's political clout, both in state capitols and here in Congress. "If we don't have the people, we can't speak very loudly in Washington or Oklahoma City," says Roger M. Beverage, president of the Oklahoma Bankers Association. "I'm concerned about industry unity and speaking with one powerful voice."

Another state trade group official adds, "Financial pressures are on everybody to deliver maximum returns to shareholders. A lot of bankers think they can quit and cut costs with no consequences. It's a very shortsighted strategy. Banks have much more at stake in the state legislatures than they realize."

It is clear the state association executives are frustrated. One explained how his group managed to get a tiny change in a state law that saved a large member bank 20 times its annual dues. But the official who refused to be named quipped: "That bought us about a year's worth of loyalty. These guys are so focused on the bottom line that their approach is, 'What are you doing for me today? I don't care what you did for me yesterday.' "

Mr. Cassady, who has run the Kentucky Bankers Association since 1986, says bank chief executive officers must change their perspective. Rather than considering association dues an expense, banks "need to look at their association as an employee and do a cost-benefit analysis."

The Kentucky group did just that in a failed attempt to talk a large bank out of quitting. "We had a $3 billion-asset institution that we were saving … close to $500,000 a year, and their dues were $50,000," Mr. Cassady says. "That's the cost of a head teller. You show me a head teller who can return half a million dollars."

Banks operating in numerous states must give executives a reason to get involved in local politics.

"There is no connection that this is any of their responsibility," Mr. Cassady says. "It's not in their job description and it's not in their incentive package. They have no reason to want to understand it."

Many CEOs defend their defections from state groups by pointing to their membership in the American Bankers Association. But Mr. Cassady insists that the ABA does very little at the state level and would be less effective nationally without the grassroots support the state trade groups provide.

Beyond the loss of effectiveness, Mr. Cassady says he worries there could be a civil war between large and small banks, which have always had an uneasy alliance. "My fear is big banks call the ABA and ABA asks us to help and we say 'no.' That could be a real possibility down the line."

He says the banks quitting state trade groups need to realize they are alienating local banks and could find themselves the target of new state laws.

"They may not be constitutional," admits the state's former banking commissioner, but state laws aimed at out-of-state banks would still need to be fought in court, and legal bills could make $50,000 in dues look cheap.

Mr. Cassady says banks must focus on state legislatures, which enact laws governing everything from foreclosure standards to consumer privacy protections. State trade groups, he says, defend the industry from legislation being pushed by both consumer activists and nonbank rivals.

"Every time one of these guys pulls out, it weakens the association," Mr. Cassady says. "Our enemies in the market see that as a vulnerability. It's like wolves; they can smell weakness and they come after you."

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