Community banks in Iowa could be facing a fight with Norwest Corp. over the state's deposit cap.
Norwest, by far the biggest bank in the state, plans to rally lawmakers against the cap, which restricts any bank from amassing more then 10% of Iowa deposits. Norwest hit the limit in 1992 and so has been barred from expanding.
Community banks, however, are sure to staunchly defend the limit, saying it keeps a lid on unfair competition.
Norwest, based in Minneapolis, wants the Iowa legislature to eliminate the cap or raise it to 15% when lawmakers reconvene in January, said H. Lynn Horak, chairman and chief executive officer of Norwest Bank Iowa. The company is looking for a legislator to sponsor such a bill.
"Any bank in the country can buy a bank in Iowa except Norwest, and that's not fair," Mr. Horak said. "The law needs to change."
Mr. Horak, who revisits the deposit cap issue every few years, sent a letter to Iowa bankers in July outlining his position.
The cap, he wrote, is hurting not only Norwest but also the community banks it would like to buy. He said banks in Iowa sell for lower premiums than banks in states without caps because big banks are hesitant to bid.
But small banks, which want protection from a single, dominant competitor, are not buying Mr. Horak's argument. A recent survey by the Iowa Bankers Association shows that about 70% of the membership would not support changes to the deposit-cap law.
And the Iowa Independent Bankers Association said Mr. Horak has a "tough sell" on the issue. It has encouraged its members to begin lobbying their local representatives on the deposit-cap issue immediately.
In a letter that reflects the sharply drawn battle lines, O.J. Tomson, chairman of First Citizens National Bank in Mason City, warned firmly against raising the cap.
"Once you hit 15%, you'll want 20%, then 25%, and so on," he said in the letter, which was published in the Iowa Independent Bankers Association's September newsletter.
Mr. Horak concedes that it is unlikely that Norwest will gain enough support to change Iowa's law in 1999. But, he noted, some bankers are realizing that it is increasingly hard to keep competition at bay. Internet banking, for example, is making it easy for Iowans to bank with out-of- state companies.
"We all know that you can't stop change," he said.
John Sorensen, president of the Iowa Bankers Association, said that opposition to the deposit cap has weakened somewhat over the past five years. But the issue remains highly charged, a point reinforced during the trade group's recent convention.
"We tried to create a constructive dialogue, but it's difficult to change people's minds," Mr. Sorensen said. He said he expects the group will continue to oppose Norwest when it draws up its official policy platform next month.